Key Takeaways
- The GENIUS Act tightly regulates stablecoin issuers but leaves secondary market trading largely untouched.
- DEX aggregators are emerging as the next likely regulatory focus for stablecoin compliance.
- Banks are urging regulators to extend AML and KYC obligations beyond issuers to routing platforms.
Washington has written 300 pages of stablecoin rules and left one question blank. Who polices the trade after the token leaves the issuer?
FinCEN and OFAC published their answers to everything else on April 8. Their joint proposal implements the GENIUS Act by treating permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act, complete with anti-money laundering (AML) programs and the first sanctions compliance mandate ever written into federal law for a defined class of US companies. Comments closed June 9.
Final rules across six agencies are due by July 18, one year to the day after the law passed, in a market holding roughly $230 billion in outstanding tokens.
Read the proposal closely, though, and a jurisdictional seam appears. Regulators drew their new perimeter around issuers while the trading actually happens somewhere else. That somewhere is the DEX aggregator layer, and it is now the most exposed piece of infrastructure in crypto.
Freeze Powers Reach Further Than Reporting Duties
Treasury’s proposal contains an asymmetry that compliance lawyers have flagged since April. Issuers must build the technical capability to block, freeze, and reject unlawful transactions, and that obligation applies across both primary and secondary market activity. Reporting duties stop far short of that line.
Under the same proposal, secondary market transfers are not by themselves treated as transactions passing through the issuer for suspicious activity reporting purposes.
Put plainly, Circle must be able to freeze USDC anywhere it moves, but nobody in the secondary market has to tell anyone anything. Tokens change hands in a surveillance gap that the rule creates and then declines to fill.
Scale makes the gap material. Aggregators have become DeFi’s default execution layer, routing more than half of all onchain swap volume on Ethereum and over 90% on Solana, where Jupiter dominates.
FinCEN’s own risk case is built on volume like this: the agency received roughly 55,000 suspicious activity reports referencing stablecoins between January 2015 and November 2025, citing ransomware, fraud, and sanctions evasion.
Banks Want the Gap Closed
Wall Street’s lobby has already asked for the obvious. In its comment letter, the American Bankers Association urged FinCEN and OFAC to address the financial crime risks of secondary market stablecoin activity, arguing that regulated institutions cannot manage stablecoin exposure without knowing what obligations apply to secondary market actors. Its recommended fix: clarify those obligations through separate rulemaking.
Strip the diplomatic language and the position is simple. Banks face full BSA costs. Issuers will soon face them too. Routers moving the same dollars should not ride free.
The Treasury has left itself the vehicle to act. Its April proposal conspicuously excludes the GENIUS Act’s customer identification program requirement, reserving it for a future rulemaking.
Whenever that CIP rule arrives, issuers will need to know who holds and trades their tokens. Onchain, that knowledge exists in exactly one place: the routing layer where orders are matched. KYC creep has a natural destination, and it is not the issuer.
Weakest Moment To Fight Back
Aggregators would struggle to absorb a compliance mandate right now. Sector daily volume fell 40% in the first quarter, to $2.7 billion from $4.6 billion, as the broader market contracted. Market leadership churned with it.
Kyber leads Ethereum aggregation near 31%, CoW Swap holds 22%, and 1inch, which once commanded the category and reports more than $700 billion in lifetime volume, has slid to roughly 15% and fourth place after a 60% quarterly volume decline.
Fragmented, shrinking businesses make poor lobbyists and worse litigants. They also make attractive regulatory targets, because a rule that binds five routing protocols effectively covers the majority of onchain stablecoin flow. Enforcement economics favours the choke point.
One more development strengthens the regulators’ hand. 1inch opened Model Context Protocol access on March 30, letting AI agents execute swaps directly on its infrastructure. Autonomous software now trades stablecoins through the exact layer that carries no identification duties. Treasury lawyers drafting the CIP rule will not need the risk explained twice.
Two Paths, One Squeeze
Industry now faces a fork.
Aggregators can accept a gatekeeper role, adding sanctions screening and geofencing the way regulated front ends already do, and pass the cost to users. Or they can push routing further on chain, beyond corporate reach, and dare Treasury to chase smart contracts instead of companies.
Consolidation logic points to the first path. The issuer framework already favors well-capitalized firms with the resources to absorb compliance costs. The same economics apply one layer down. Routers that can afford compliance are likely to inherit the volume of those that cannot.
Either way, the GENIUS Act’s enforcement story will not be written at the issuer level, where everyone is watching. It will be written in the routing layer, where oversight has yet to catch up.
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Dr. Guneet Kaur is a senior editor at CCN.com and a Science Fellow at Exponential Science. She is a fintech and blockchain expert with extensive experience in digital finance education, blockchain ecosystems, and cryptocurrency markets. She has worked with global media such as Cointelegraph, as well as education and blockchain platforms, to design and lead strategic content and learning initiatives. As an educator and assessor for top-tier executive programs, she bridges real-world fintech trends with academic insight.
Dr. Kaur is also a published researcher and peer reviewer across fintech and data science journals, including Financial Innovation Journal and International Journal of Big Data Intelligence and Applications. Her work spans data-driven analysis, Web3 innovation, and technical content development. With a strong foundation in both industry and academia, she translates complex financial technologies into practical applications, empowering learners, professionals, and institutions across the rapidly evolving digital finance landscape.
