1. What did the Blockchain Association ask Treasury to change?
The Blockchain Association, a crypto industry trade group, has asked the US Treasury Department to raise the threshold for holding a company responsible for an unlawful stablecoin issuance under the GENIUS Act. In a 26-page comment letter dated October 19, the group argued that a firm should face liability only when it actually knew the facts that made an issuance illegal, and that traders and decentralized finance (DeFi) infrastructure should fall outside the rule entirely. The letter targets the stablecoin regulation Treasury proposed to implement Section 3 of the law.
October 19 was the final day Treasury accepted public feedback on the proposal. Section 3 of the GENIUS Act deals with two linked questions: who may issue payment stablecoins in the United States, and under what conditions digital asset service providers, known as DASPs, may offer or sell those tokens to people in the country. The association's post on X said the letter "seeks clearer lines so the final rule matches what Congress wrote."
The request is narrow in form but broad in consequence. How Treasury defines participation in an unlawful issuance will decide whether exchanges, market makers and other intermediaries need to treat every new stablecoin as a potential liability, or whether they can rely on what an issuer tells them.
2. What does the GENIUS Act regulate?
The GENIUS Act is the US federal law that sets up a framework for payment stablecoins, which are digital tokens designed to hold a steady value, typically one dollar, and to be used for payments and settlement. Section 3 draws the line between lawful and unlawful issuance and extends responsibility beyond the issuer to the companies that distribute the tokens to customers.
That second part is what makes the Treasury proposal important for the wider industry. A DASP is a business that provides services involving digital assets, and under the law such businesses may offer or sell payment stablecoins to US persons only when the tokens come from a permitted issuer. The proposed rule spells out how Treasury would judge whether a service provider took part in an unlawful issuance, and it is that judgment that the Blockchain Association wants to tighten.
Treasury announced the proposal on August 17. Treasury Secretary Scott Bessent said at the time that the department "welcomes input from stakeholders" as it works toward regulatory certainty for businesses. The association's letter is one of the responses that invitation produced.
3. Why does the knowledge standard matter?
Treasury's proposal lists three examples of what it treats as knowing participation in an unlawful issuance. The list is not exclusive, meaning Treasury could reach other conduct too. One of the examples covers market making and the distribution of newly issued coins. Because market makers supply the buy and sell quotes that let a new token trade, an unclear rule could expose them to liability simply for doing their ordinary work.
The association asks Treasury to confirm that the standard requires actual knowledge of the facts that make an issuance unlawful, not suspicion or a belief that something may be wrong. It also asks Treasury to confirm that firms are entitled to rely on representations made by the issuer. In the group's reading, routine market making and secondary trading should not count as knowing participation unless a firm gives affirmative and substantial assistance in coordination with the issuer.
The distinction between knowledge and belief is a familiar one in financial regulation. A knowledge standard gives compliance teams a concrete test: did the firm have information establishing that the issuance was unlawful? A broader belief-based standard asks what a firm should have suspected, and that is harder to document and easier to second-guess after the fact. For businesses that list or trade many tokens, the difference determines how much legal risk they carry for each one.
For the industry, the stakes are practical rather than abstract. A rule that is vague about knowledge pushes firms toward over-caution, such as delisting tokens or declining to quote them, even when nothing about an issuance is actually wrong. A rule that is precise lets legitimate activity continue while still leaving regulators room to pursue firms that knowingly help an unlawful issuer reach customers. That balance is the one the association says Congress intended, and the one it hopes Treasury will write into the final text.
4. How could the rule affect the July 2028 compliance date?
A separate request concerns timing. The association asks Treasury to make sure the provision does not, in practice, pull forward the compliance date that Congress set for DASPs. That date is July 18, 2028.
The worry is that a liability rule could act as a de facto deadline. If a service provider can be held responsible for an unlawful issuance as soon as the rule takes effect, it would have to stop handling certain stablecoins long before the statutory grace period for DASPs ends. By asking Treasury to protect the congressional date, the group is asking the agency not to shorten a transition period the legislature chose deliberately.
5. What is wrong with the foreign-counterparty test?
The letter also takes aim at a test in the proposal that turns on whether a firm "reasonably believes" a counterparty is located outside the United States. The group wants Treasury to drop that wording and substitute a standard built on actual knowledge and on information a firm reasonably obtains in the ordinary course of a transaction.
The argument rests on how DeFi works in practice. A protocol or trading venue operating on a public blockchain may see only a wallet address. It has no onboarding process, no identity documents and no way to determine who controls the address or where that person lives. A belief-based geographic test would therefore ask these firms to form a judgment they have no means of supporting, while an actual-knowledge test would ask only what they genuinely know.
6. Who counts as a digital asset service provider?
The association says the DASP label should apply only to businesses that actually provide services. It wants Treasury to honor the carve-outs Congress wrote into the statute for self-custody software, validators and liquidity pools. According to the letter, those exclusions "reflect a deliberate congressional judgment" that public blockchain infrastructure is not a service provider.
The letter adds a related point about proprietary activity. A firm that trades its own money, whether on decentralized exchanges or elsewhere, should not become a DASP for that reason alone. Trading for oneself and serving customers are different activities, and the association wants the final rule to keep them apart.
Those positions follow a long-running theme in the industry's engagement with US regulators. Software that merely lets users hold their own keys, nodes that validate transactions and pools of assets that automated contracts use to match trades are tools, the argument goes, not intermediaries standing between a customer and a product. Treating them as service providers would impose licensing-style obligations on parties that have no customers to screen.
7. What about due diligence on foreign issuers?
The letter says Treasury "should not require" DASPs to carry out open-ended due diligence on foreign payment stablecoin issuers. Instead, the group asks that firms be permitted to rely on public lists of approved and barred issuers maintained by regulators.
The practical appeal is predictability. If a service provider can check a government list and treat the result as sufficient, it knows where its obligations end. If it must instead investigate each overseas issuer on its own, the cost and uncertainty rise, and smaller firms in particular could decide that offering certain stablecoins is not worth the exposure.
8. When would the rule take effect?
The letter notes that Treasury's proposal does not specify an effective or compliance date for Part 1523, the section of regulations it would create. The association asks that the rule take effect no earlier than the latest related GENIUS Act rule, so that businesses can read the pieces of the framework together before any of them binds.
That request reflects the unfinished state of the wider rulebook. Several of the related rules remain proposals, including one the Federal Reserve put forward in September. A firm trying to build a compliance program today is working from drafts that may still change, and the group argues that a liability rule should not go live before the surrounding requirements are settled.
The statute has its own clock. The law begins to apply on January 18, 2027, or 120 days after regulators finalize their rules, whichever comes first. Because the earlier of those two dates controls, the pace at which agencies complete their work will determine how quickly the framework becomes enforceable.
9. What happens next?
With the comment period closed, Treasury will review the letters it received and decide whether to revise the proposal before issuing a final rule. The agency has not announced a date for that step. The final text will show whether the department accepts the association's actual-knowledge standard, keeps its three examples of knowing participation, or finds a middle path.
Industry groups, exchanges and DeFi developers will watch three points in particular: the wording of the knowledge test, the treatment of validators, self-custody software and liquidity pools, and whether the final rule carries an effective date tied to the other GENIUS Act rules. Each of them shapes how much risk intermediaries must price in when deciding which stablecoins to support, and how far the law's reach extends into decentralized markets.
Until Treasury acts, the association's letter stands as the clearest public statement of how a large part of the industry wants the line drawn, and it gives the agency a detailed list of the specific phrases, tests and exclusions that market participants consider unworkable as currently drafted.