Blockchain Association Backs KYC Limits for Stablecoin Issuers Under New U.S. Law
The industry group supports restricting identity checks to minting, redemption, and custody, leaving the vast majority of stablecoin activity untouched.
The Blockchain Association submitted a formal comment letter to the U.S. Treasury on August 21, 2026, endorsing proposed rules that would limit customer identity verification requirements for stablecoin issuers to direct transactions only. The group's position aligns with a regulatory framework taking shape under the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), the first comprehensive U.S. stablecoin law, which was enacted in July 2025 and takes full effect in January 2027, with additional sales restrictions activating July 18, 2028.
The comment deadline closed August 21 for a joint proposal published June 18 by five federal agencies: the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, the FDIC, and the NCUA. The proposal sets out Customer Identification Program (CIP) requirements for what the law calls Permitted Payment Stablecoin Issuers (PPSIs), a new regulatory category that treats stablecoin issuers as financial institutions subject to anti-money laundering and counter-terrorism financing (AML/CFT) rules. This CIP proposal is the second of three GENIUS Act rulemakings currently in progress: the first, an AML/CFT framework published April 1, 2026, completed its comment period in June; a third rulemaking addressing jurisdictional scope was published August 18.
The core dispute: where does compliance stop?
The central question in the rulemaking is which stablecoin transactions must be subject to identity checks. The agencies proposed drawing a clear boundary between two zones. The primary market covers direct issuer-to-customer activity, specifically the creation (minting), destruction (redemption), and custody of stablecoins. CIP requirements apply here. The secondary market covers everything else: trades on exchanges, peer-to-peer transfers, and activity on decentralized finance protocols. The agencies deliberately excluded this zone from CIP obligations. According to legal analysis published by Sullivan and Cromwell, extending identity checks to every stablecoin transfer would be nearly impossible to implement and could cripple the industry.
That secondary market category accounts for roughly 99 percent of all stablecoin activity, according to analysis by law firm Sullivan and Cromwell and reporting by FinanceFeeds.
The Blockchain Association's comment backs this structure while asking regulators to sharpen the statutory language defining what counts as an "account," a "customer," and what specific activities trigger compliance obligations. The group has raised similar concerns in separate letters to the FDIC, arguing that final rules should stay within the boundaries Congress set and not add obligations beyond what the Act requires. Those letters specifically addressed reserve segregation requirements, ownership structures, and the role of blockchain-based technology in the regulatory approval process.
The DeFi Education Fund and the Solana Policy Institute filed a joint comment letter on the same August 21 deadline, taking a comparable position. The two groups said they support FinCEN's focus on direct issuer relationships but urged agencies not to let the final rule expand into decentralized infrastructure or secondary-market activity.
The numbers behind the debate
The stablecoin market the rules will govern is substantial. Total stablecoin market capitalization stood at approximately $308 billion as of August 13, 2026, up 14.3 percent year over year.
Tether (USDT) holds roughly 58 percent of that market at $185 billion in circulation. USD Coin (USDC) accounts for around $78 billion, or 23 percent. Together, the two tokens represent about 82 percent of the entire stablecoin market. On-chain transaction volume in 2025 reached $18.3 trillion for USDC and $13.3 trillion for USDT. Approximately 269 million unique on-chain addresses held stablecoins by mid-2026.
Per-issuer annual compliance costs under the proposed framework are estimated at roughly $83,660 for the AML/CFT program and $33,000 for the CIP requirement, according to FinanceFeeds. Both figures are per-issuer annual estimates and should not be read as aggregate industry totals.
What this means outside the United States
The regulatory boundaries matter significantly for users in emerging markets where stablecoins have become practical financial infrastructure. Sub-Saharan Africa, the third fastest-growing crypto market globally according to the United Nations Economic Commission for Africa, processed over $205 billion in crypto value between 2024 and 2025, with stablecoins accounting for 43 percent of that volume.
Nigeria alone handled an estimated $26 billion in stablecoin transactions in 2024, largely USDT used for import and export payments. Nigeria accounts for roughly 60 percent of stablecoin inflows across sub-Saharan Africa since 2019, according to International Monetary Fund data. A 2026 survey found 95 percent of Nigerian respondents preferred receiving payments in stablecoins.
The primary-market-only KYC approach preserves usability for most of these users, who transact in the secondary market and would not face issuer-level identity checks. The larger concern is structural. Because the GENIUS Act requires foreign stablecoin issuers to demonstrate they can comply with U.S. freeze and blocking orders before serving U.S. users, the regulatory structure could pressure consolidation toward U.S.-regulated issuers such as Circle, which issues USDC.
Standard Chartered has projected that stablecoin savings in emerging markets could grow from roughly $173 billion to $1.22 trillion by 2028, with Egypt, Pakistan, Bangladesh, Sri Lanka, and Colombia among the countries most exposed to deposit outflows from traditional banks. India, identified by Standard Chartered as one of the highest-impact remittance corridors for stablecoin penetration, faces a similarly significant potential shift away from traditional banking as stablecoin adoption accelerates.
What comes next
A separate Treasury rulemaking, published August 18, defines when a stablecoin is considered to be "issued in the United States" and when a foreign issuer is "offering or selling to persons in the United States," together establishing the conditions under which a foreign issuer becomes subject to the Act's licensing requirements.
That proposal carries a comment deadline of October 19, 2026. Treasury Secretary Scott Bessent has framed the overall rulemaking effort as providing "regulatory certainty" while reinforcing the U.S. dollar's role as the world's reserve currency.
For developers building cross-border payment or DeFi protocols, the October deadline is the next live regulatory window worth tracking.