Blockchain Association Pushes Treasury for Clearer GENIUS Act Rules on DeFi and Foreign Issuers

The Blockchain Association has filed a 26-page comment letter with the U.S. Treasury, backing the agency's core approach to implementing Section 3 of the GENIUS Act while calling for sharper definitions in three areas that directly affect accounting firms, compliance officers, and CFOs operating in digital assets: the scope of "digital asset service providers," the standard for criminal liability under "knowing participation," and the due diligence burden placed on firms that offer foreign payment stablecoins. With 123 submissions received before the comment period closed on Monday, the Treasury's final rule will shape the stablecoin compliance landscape from January 2027 onward.

What Section 3 of the GENIUS Act Actually Governs

The GENIUS Act is the primary US stablecoin legislation passed last year and scheduled to take effect in January 2027. Section 3 specifically governs who can issue, offer, and sell payment stablecoins in the United States. Treasury's proposed regulations implement that section, and the public comment window that closed this Monday drew 123 submissions, signalling the breadth of industry concern.

The Blockchain Association expressed support for the overarching objective: ensuring that payment stablecoins are safe, trustworthy, and issued by entities that maintain adequate reserves. Its critique is not one of direction but of precision. As the group stated in a thread of posts on X, its letter "seeks clearer lines so the final rule matches what Congress wrote."

Why the Definitions Matter for Compliance Teams

When a statute ties compliance obligations, reporting duties, and potential criminal exposure to a defined term, the breadth of that definition determines who must build out AML programs, conduct customer due diligence, and maintain capital reserves. A definition that is too wide can sweep in businesses that Congress did not intend to regulate. One that is too narrow creates gaps that bad actors exploit. For accounting and compliance professionals, the stakes of getting this right are immediate and practical.

The DASP Definition: Who Is Actually Covered?

The most operationally significant issue in the letter is the scope of "digital asset service providers," or DASPs. The DASP definition determines which businesses fall within the stablecoin regulatory perimeter and, by extension, which entities must comply with the GENIUS Act's AML and reserve requirements.

What the Association Wants Excluded

The association argues that Congress wrote the DASP definition to cover businesses serving customers, not core infrastructure. It specifically calls for self-custody software and validators to be explicitly excluded. It also contends that firms trading their own assets — proprietary trading desks and treasury operations, for example — should not be captured by a customer-facing definition.

For accounting firms advising clients that run validator nodes or develop non-custodial wallet software, this distinction is consequential. If validators are DASPs, they inherit a full suite of compliance obligations: transaction monitoring, suspicious activity reporting, and potentially reserve attestation requirements. That regulatory burden could alter the economics of running infrastructure and force restructuring decisions that touch balance sheets and entity structures.

CFOs at firms with proprietary digital asset desks face a parallel question. If internal trading activity qualifies a firm as a DASP, the firm may need to register, appoint compliance officers, and build KYC workflows for counterparties that are already known entities. The association's position is that Congress did not intend this result, and the final rule should say so explicitly.

Criminal Liability and the "Knowing Participation" Standard

Section 3 of the GENIUS Act contemplates criminal penalties for entities that "knowingly participate" in unlawful stablecoin issuance. The Blockchain Association's letter focuses on what "knowing participation" should require before criminal liability attaches.

The Current Proposal and Its Risks

Under the Treasury's proposed framing, the association believes the standard could be read broadly enough to expose ordinary secondary-market participants. Its position is that liability should require two elements: actual knowledge that the issuer is operating unlawfully, and substantial assistance provided in direct coordination with that issuer. Simply buying or selling a stablecoin on a secondary market would not meet either threshold.

This matters acutely for digital asset brokers, OTC desks, and custodians. If a desk executes a client trade in a stablecoin that turns out to have been issued by an unregistered entity, a vague "knowing participation" standard creates legal uncertainty about whether the desk has criminal exposure. That uncertainty translates directly into compliance costs: legal opinions, enhanced pre-trade screening, and potentially the decision to delist any stablecoin whose issuer cannot be verified as compliant.

For accounting firms preparing financial statements or conducting audits of clients that hold stablecoin inventories, the criminal standard also affects disclosure. If there is meaningful legal uncertainty about whether a client's stablecoin holdings constitute participation in unlawful activity, that uncertainty may need to be reflected in going-concern assessments or contingent liability notes. Clarity in the final rule reduces disclosure risk on both sides of the audit table.

Foreign Issuers: Due Diligence Without a Direct Relationship

The letter's third major theme addresses how US-based DASPs should satisfy due diligence obligations when they offer stablecoins issued by foreign entities. The current proposed rule would require DASPs to conduct "open-ended due diligence" on foreign payment stablecoin issuers before listing or offering their tokens.

The Practical Problem with Open-Ended Due Diligence

The association points out a structural reality: many DASPs have no direct relationship with foreign issuers. A US exchange listing a foreign-issued stablecoin typically receives the token through market-makers, liquidity providers, or on-chain mechanisms. It may have no contractual or informational channel to the issuer at all. Requiring that exchange to independently audit or investigate the foreign issuer's reserve practices, governance, and regulatory status is, in the association's view, disproportionate and often practically impossible.

Its recommended alternative is more workable: allow DASPs to rely on regulators' publicly available prohibition lists as the primary compliance mechanism. If a foreign stablecoin issuer does not appear on a designated prohibition list, the DASP has met its due diligence obligation by checking that list. This approach mirrors how sanctions compliance works in traditional finance, where banks rely on OFAC's Specially Designated Nationals list rather than conducting independent investigations into every counterparty's beneficial ownership structure.

The accounting implications here are significant. If the final rule adopts open-ended due diligence, firms will need to design and document bespoke foreign issuer assessment frameworks, retain records of those assessments, and update them periodically. That is an audit-ready process that requires both technology infrastructure and professional judgment. A prohibition-list standard, by contrast, is auditable, repeatable, and scalable. The difference in compliance cost between the two approaches could run into hundreds of thousands of dollars annually for a mid-sized DASP.

The "Reasonably Believes" Standard and Permissionless Environments

A fourth area of concern involves the standard Treasury proposed for determining whether a counterparty is located in the United States. The proposed "reasonably believes" standard would require DASPs to form a view about counterparty geography, but the association argues this is unworkable in permissionless settings.

The Wallet-Address Problem

In permissionless DeFi protocols, a DASP or protocol may interact only with a wallet address. No name, no IP address, no jurisdiction indicator accompanies the transaction. The association argues that requiring identification and geolocation in this context is technically impractical and that the rule should instead be grounded in actual knowledge gathered through ordinary business processes, such as KYC collected at onboarding for those users who do go through a front-end with identity verification.

This point connects to a broader debate about how AML obligations should apply to DeFi. The association is effectively arguing that the rule should acknowledge the architecture of permissionless systems rather than assume a traditional financial intermediary sits between every transaction and every user. Accounting and compliance teams building DeFi-adjacent products need this clarity to design systems that are genuinely compliant rather than nominally compliant.

What Happens Next and What Firms Should Do Now

The public comment period closed Monday with 123 submissions. Treasury will now review those submissions before publishing a final rule. Given that the GENIUS Act is expected to take effect in January 2027, firms have a limited window to prepare their compliance architecture before the rules become binding.

Accounting and Audit Considerations

Whether or not Treasury adopts the Blockchain Association's recommendations, accounting firms and CFOs should begin stress-testing their current stablecoin positions against both the proposed rule and the association's preferred alternative. Key questions include: Does your firm operate any infrastructure that could be characterised as a DASP under the current proposed definition? Do you hold or trade stablecoins issued by foreign entities that lack a direct contractual relationship with your firm? Do your existing AML policies specify an "actual knowledge" standard for secondary-market activity, or do they leave room for looser interpretations?

For audit clients, the relevant disclosure question is whether contingent liabilities exist under either version of the "knowing participation" standard. ASC 450 and IAS 37 both require disclosure of material contingent liabilities where an obligation is probable or, under IFRS, where an outflow is more likely than not. If the final rule retains a broad knowing-participation standard, clients with large stablecoin inventories or market-making operations may need to revisit their contingent liability disclosures.

Practical Steps Before January 2027

First, map every stablecoin your firm or your clients issue, hold, or facilitate against the DASP definition as currently proposed. Second, review existing AML policies to confirm that the "knowing participation" standard your firm applies internally requires actual knowledge, not mere constructive knowledge. Third, assess your foreign stablecoin due diligence process: can it be operationalised at scale, or does it depend on information that foreign issuers are not obligated to provide? Fourth, monitor the Treasury's final rule publication, which should arrive in the months ahead as the January 2027 effective date approaches. Deploying the right crypto accounting software that can track stablecoin flows, flag foreign issuers, and maintain an auditable record of due diligence steps will be an operational prerequisite rather than a nice-to-have once the GENIUS Act takes effect.

The broader US regulatory landscape for stablecoins and digital assets is shifting rapidly. For additional context on how US crypto regulation is being rewritten across multiple fronts, see our analysis of US crypto regulation across the GENIUS Act and AML frameworks in 2026. For the European parallel on stablecoin significance thresholds, the EBA's designation of USDC as the EU's first significant e-money token offers a useful comparison of how different jurisdictions are drawing their regulatory perimeters.

Source: The Block

Frequently Asked Questions

What is the GENIUS Act and when does it take effect?

The GENIUS Act is US stablecoin legislation passed last year. Section 3 governs who can issue, offer, and sell payment stablecoins in the US. It is expected to take effect in January 2027, with Treasury currently finalising implementing regulations.

What is a digital asset service provider under the proposed rule?

The DASP definition in Treasury's proposed rule determines which businesses fall within the GENIUS Act's regulatory perimeter. The Blockchain Association argues the definition should explicitly exclude self-custody software, validators, and firms trading only their own assets, because Congress designed it to cover customer-facing businesses.

What does "knowing participation" mean and why does it matter?

"Knowing participation" in unlawful stablecoin issuance can carry criminal penalties under the proposed rule. The Blockchain Association argues that liability should require actual knowledge of the issuer's unlawful status and substantial, coordinated assistance, not mere secondary-market trading in the stablecoin.

How should a US firm handle due diligence on foreign stablecoin issuers?

Under the current proposal, DASPs would need to conduct open-ended due diligence on foreign issuers. The association recommends instead allowing DASPs to rely on regulators' published prohibition lists, a standard that mirrors sanctions compliance in traditional finance and is far more scalable for firms that have no direct relationship with foreign issuers.

What should accounting firms do before January 2027?

Firms should map all stablecoin positions against the proposed DASP definition, review AML policies to confirm an actual-knowledge standard for secondary-market activity, assess foreign issuer due diligence capacity, and monitor the Treasury's final rule publication. Deploying robust crypto bookkeeping software capable of tracking stablecoin flows and maintaining auditable due diligence records will be essential ahead of the January 2027 effective date.