Blockchain Association urges tailored KYC rules for stablecoin issuers

The Blockchain Association fired off a comment letter to federal regulators on August 21, pushing back on the scope of proposed know-your-customer rules for stablecoin issuers. The core argument: if someone buys a stablecoin on a decentralized exchange through a smart contract, the issuer shouldn’t be on the hook for identifying them.

The letter responds to a joint proposed rule from FinCEN, the Federal Reserve, and other federal agencies that would establish customer identification program (CIP) requirements for permitted payment stablecoin issuers, or PPSIs, under the GENIUS Act. That legislation, signed on July 18, 2025, represents the first comprehensive federal framework for payment stablecoins in the US.

Primary market only, please

The Blockchain Association isn’t fighting the concept of KYC for stablecoin issuers. It endorsed the proposed rule in broad strokes. Where it draws the line is how far those obligations should extend.

Under the proposed framework, CIP requirements are modeled on existing bank obligations. Issuers would need to collect a customer’s name, date of birth, address, and identification number. Records would need to be retained for five years after an account is closed.

The Association’s position is that these requirements should only kick in where an explicit contractual relationship exists between an issuer and a customer. That means primary market activity, the direct minting and redemption of stablecoins, where the issuer and customer are actually transacting face to face (or at least screen to screen).

Secondary market transactions are a different animal. When someone swaps stablecoins on a decentralized protocol, the issuer has no direct relationship with the buyer. The Association argues this would be both impractical and misaligned with how blockchain infrastructure actually works.

Zero-knowledge proofs as the verification middle ground

Beyond scope, the Blockchain Association is also pushing for flexibility in how identity verification gets done. Specifically, the group advocates for allowing zero-knowledge proof technologies as an acceptable method for meeting CIP requirements.

Zero-knowledge proofs let one party prove something to another, say, that they’re over 18 or that their identity has been verified, without revealing the underlying data. The cryptographic math confirms the claim without exposing the personal information behind it.

The five-year recordkeeping requirement in the proposed rule makes this tension especially acute. Holding personal data for half a decade post-account closure is a long time to keep a target on your servers. Privacy-preserving verification methods could let issuers comply without accumulating large stores of names, addresses, and ID numbers.

Timing matters as much as substance

The Association’s letter also flags a coordination problem. The GENIUS Act created a new regulatory category, but the various agencies tasked with implementing it are working on different timelines. The Blockchain Association is requesting that regulators synchronize their deadlines to prevent situations where issuers face conflicting or overlapping compliance windows.

The comment submission itself aligns with August 2026 deadlines set by the rulemaking process.

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