Blockchain Association Urges Regulators to Limit Stablecoin KYC to Primary Issuance

The Blockchain Association submitted a comment letter to federal regulators on Aug. 21, challenging the reach of proposed know-your-customer requirements for stablecoin issuers. The group argues that when a user acquires a stablecoin on a decentralized exchange via a smart contract, the issuer should not be responsible for identifying that buyer. The letter responds to a joint proposed rule from FinCEN, the Federal Reserve and other federal agencies that would impose customer identification program (CIP) obligations on permitted payment stablecoin issuers (PPSIs) under the GENIUS Act. Signed into law on July 18, 2025, the GENIUS Act is the first comprehensive U.S. federal framework governing payment stablecoins. KYC supported, but only where the issuer has a customer relationship The Association said it supports the concept of KYC for stablecoin issuers and broadly endorses the proposed rule. Its objection centers on how far CIP duties should extend. Under the proposal, CIP requirements mirror bank-style obligations. Issuers would be expected to collect a customer's name, date of birth, address and identification number, and retain records for five years after an account is closed. The Association contends these requirements should apply only when there is an explicit contractual relationship between an issuer and a customer, namely primary market activity such as direct minting and redemption. It says secondary market transactions, including swaps executed on decentralized protocols, do not involve a direct issuer-to-buyer relationship, making issuer-led identification impractical and inconsistent with how blockchain infrastructure functions. Pushing for zero-knowledge proofs as a compliance option Beyond scope, the letter calls for flexibility in how identity verification can be performed. The Association urges regulators to recognize zero-knowledge proof technology as an acceptable way to meet CIP requirements. Zero-knowledge proofs can allow a party to demonstrate a fact—such as being over 18 or having completed identity verification—without disclosing the underlying personal data. The Association argues this approach could reduce the privacy and security risks associated with storing sensitive information, an issue it says is heightened by the proposed five-year recordkeeping requirement. Request to align agency timelines The comment letter also highlights potential coordination issues as multiple agencies implement the GENIUS Act on different schedules. The Association asked regulators to synchronize deadlines to avoid overlapping or conflicting compliance windows for issuers. The submission aligns with the rulemaking process timeline, which includes August 2026 deadlines.