TL;DR
▶ The Midnight Foundation filed a formal comment (FINCEN-2026-0100-0022) with FinCEN and OFAC on July 29, 2026 on the GENIUS Act stablecoin proposed rule.
▶ The problem: the rule never bans privacy chains but its compliance tests quietly assume transparent public ledgers as the only valid architecture.
@midnightfdn on X and July 29, 2026
“The Midnight Foundation submitted a formal comment to FinCEN and OFAC on the proposed GENIUS Act stablecoin rules. Led by @DrSajKay, our comment focused on one key principle: compliance should be measured by outcomes, not architecture.“
“Financial privacy and regulatory accountability are not competing goals. The future of stablecoins should enable institutions to meet compliance requirements while protecting sensitive financial information from unnecessary public exposure.”
Source: @midnightfdn X thread, July 29, 2026 (status/2082430918111695121)
▶ The argument: regulatory visibility (authorized parties can see data) is not the same as public transparency (everyone can see data). The rule conflates them.
▶ The fix Midnight proposed: define compliance by outcomes not architecture. Eight specific clarifications submitted to FinCEN and OFAC.
▶ Monument Bank is already tokenizing £250M in customer deposits as shielded tokens on Midnight with regulatory access via viewing keys. This is not theoretical.
The Midnight Foundation filed a formal comment with the US Treasury, announced publicly on July 29, 2026, targeting a structural flaw in the GENIUS Act’s proposed stablecoin compliance rule. The filing, docketed at regulations.gov as FINCEN-2026-0100-0022, was submitted by five named Midnight officials: Dr. Saj Khoshroo (CLO), Dr. Ben Beckmann (CTO Advisor), Elkan Adler (Senior Legal Counsel), Mahesh Sashital (Solutions Manager), and Cliff Koutsky (Public Sector Business Development). It is a legal and technical intervention, not a marketing document.
The target is the joint FinCEN and OFAC proposed rule published April 9, 2026, which implements the GENIUS Act’s directive to subject Permitted Payment Stablecoin Issuers (PPSIs) to Bank Secrecy Act obligations and sanctions compliance programs. The rule is outcome-focused and does not prescribe specific blockchain architectures. That part Midnight explicitly praised. The problem is in the compliance mechanisms the rule describes. Blockchain analytics. Public on-chain data. Observable secondary-market activity. Every compliance demonstration the rule envisions relies on one implicit assumption: that the underlying blockchain is publicly transparent. For every stablecoin that has existed until now, that assumption holds. For Midnight’s selective-disclosure architecture, it does not.
The Midnight Foundation’s argument is not that the rule is wrong. It is that the rule is incomplete. Left as written, an examiner, exchange, or bank intermediary evaluating a privacy-preserving stablecoin issuer would find that none of the standard compliance demonstrations work, because they all require public observability the issuer by design does not provide. Without explicit acknowledgement that selective-disclosure architectures can satisfy the same obligations through different mechanisms, privacy-preserving stablecoins face de facto exclusion from the US market not through prohibition but through interpretive default.
The Core Argument: Regulatory Visibility vs Public Transparency
The distinction that changes everything
Regulatory visibility means authorized parties, regulators, law enforcement, the issuer itself, can see transaction data when they need to. Public transparency means anyone can see it, including competitors, data brokers, hostile foreign actors, and criminals mapping wallets for targeting. Legacy blockchains like Ethereum and Solana deliver both simultaneously as an architectural side effect. Midnight delivers regulatory visibility without public transparency. The Midnight Foundation’s argument to FinCEN and OFAC: the GENIUS Act’s policy goal is the first thing. The rule as written measures compliance using the second thing. Those are not the same.
This distinction is the heart of the filing and the most important concept for understanding what Midnight is arguing. The GENIUS Act’s goal is protecting the US financial system from illicit finance. That goal requires regulators and the stablecoin issuer to have full visibility into transactions when it matters. It does not require that visibility to be public. It does not require your payroll, your supplier payments, or your treasury movements to be permanently visible on a block explorer that any competitor, data broker, or hostile state actor can query.
The Midnight Foundation identifies four specific costs that public transparency imposes without contributing to the compliance goal. Surveillance of lawful activity: a property tax payment made with a transparent stablecoin permanently links your wallet to that payment in a public database. Competitive exposure: no enterprise CFO will put supplier payments or treasury moves on a public ledger. Privacy law tension: state-chartered banks exploring tokenized deposits face a conflict between public-chain deployment and Gramm-Leach-Bliley Act confidentiality obligations. National security risk: public chains allow foreign adversaries to map financial flows of US citizens and critical infrastructure operators at scale.
Then Midnight makes its sharpest point. Transparent-chain monitoring is already being evaded. The rule’s own supporting materials describe how Garantex, a sanctioned Russian exchange, rotated wallets daily to defeat blockchain analytics tools. If the compliance framework depends on public observability that sophisticated actors already bypass, it is defending against yesterday’s evasion technique while ignoring a more effective alternative.
How Selective Disclosure Meets Every GENIUS Act Obligation
GENIUS Act PPSI Obligations: Transparent Chain vs Selective Disclosure
Source: Midnight Foundation filing FINCEN-2026-0100-0022, July 29, 2026 | @cryptonewsbytes
| Obligation | Transparent Chain | Selective Disclosure (Midnight) |
|---|---|---|
| AML/CFT monitoring | Issuer sees what everyone sees via public ledger | Issuer sees identical or richer data via viewing keys. Regulators access the same. |
| Block, freeze, reject | Token contract controls (e.g. Circle’s USDC freeze function) | Same smart-contract controls operate on shielded chains. The mechanism is in the contract, not the chain’s transparency. |
| Sanctions compliance | Post-settlement detection via analytics. Sophisticated actors evade this. | ZK proofs block prohibited transfers pre-settlement. Every transfer proves neither party is sanctioned before it executes. |
| Lawful orders | Issuer freezes, seizes, burns. Evidence = block explorer screenshot. | Issuer freezes, seizes, burns. Evidence = cryptographically authenticated, tamper-evident record. Stronger than a screenshot. |
| Travel Rule and recordkeeping | Off-chain data transmission. Ledger visibility irrelevant. | Same. Off-chain. Ledger architecture makes no difference. |
| Information asymmetry | Issuer sees same data as illicit actors designing evasion | Issuer sees what the public cannot. Evasion designers cannot map what they cannot observe. |
Source: Midnight Foundation comment FINCEN-2026-0100-0022 (regulations.gov), July 29, 2026 | @cryptonewsbytes
The information asymmetry point in the final row is the most counter-intuitive finding in the filing and deserves direct attention. On a transparent chain, the issuer has exactly the same visibility as any sophisticated criminal engineering around it. On a selective-disclosure chain, the issuer has visibility the public does not. That asymmetry favors compliance, not crime. A sanctions evader who cannot observe the full transaction graph cannot design evasion patterns around it.
The Eight Clarifications Midnight Asked For
The Midnight Foundation did not ask FinCEN and OFAC to weaken the rule. It asked for eight specific clarifications that would make the rule technology-neutral without reducing any compliance obligation. The eight requests submitted to docket FINCEN-2026-0100:
The Eight Midnight Foundation Clarification Requests
Define ‘technical capability to block, freeze, and reject’ by compliance outcome, not blockchain architecture. Explicitly include cryptographic enforcement.
Acknowledge that ZK-based pre-settlement enforcement is an effective sanctions compliance program under OFAC’s rules.
Specify that a PPSI’s choice of blockchain is not itself a customer-due-diligence risk factor where equivalent regulatory visibility is demonstrated.
Confirm that issuer-accessible data via viewing keys satisfies any future secondary-market monitoring obligations.
Validate that cryptographically authenticated records may satisfy lawful-order compliance without requiring public verifiability.
Reiterate that Travel Rule compliance is judged on off-chain data transmission, not on-chain visibility.
Use technology-neutral language in the preamble such as ‘auditable DLT’ or clarify that ‘public ledger’ refers to verifiability, not public visibility of transaction contents.
Ensure state-level regimes that recognize selective disclosure are not penalized under the ‘substantial similarity’ framework.
Source: Midnight Foundation comment FINCEN-2026-0100-0022 (regulations.gov) | @cryptonewsbytes
This Is Already Live at Monument Bank: Why It Is Not Theoretical
What is a PPSI?
A Permitted Payment Stablecoin Issuer is the category the GENIUS Act creates for regulated stablecoin issuers. PPSIs must register, maintain reserves, and comply with AML/CFT obligations under the Bank Secrecy Act. The proposed FinCEN/OFAC rule sets out what those compliance programs must include. Circle (USDC) and Tether (USDT) would be PPSIs. Any Midnight-based stablecoin issuer would also be a PPSI and would need to demonstrate it meets the same compliance standards through selective-disclosure mechanisms rather than public-chain transparency.
Monument Bank, a regulated UK financial institution, is currently tokenizing £250 million in customer deposits as shielded tokens on the Midnight network. The compliance architecture is live: balances and transaction histories are cryptographically private, regulatory access is preserved through issuer viewing keys, and no public-chain transparency is required by the UK’s Financial Conduct Authority. The FCA accepts the selective-disclosure model as sufficient for regulatory oversight. Midnight’s argument to FinCEN and OFAC is that the US framework should reach the same conclusion.
The Texas Blockchain Council is also working with state legislators on stablecoin legislation that contemplates privacy-enhancing designs. Midnight ecosystem partners have responded to government RFIs at state and federal level. The regulatory engagement predates the July 27 filing. What the filing does is force the specific question at the federal rulemaking level before the comment period closes and the final rule is set. Once the final rule is written, changing it requires a new rulemaking cycle. The Midnight Foundation is making the argument now, not after.
Section 9 of the GENIUS Act provides the statutory hook. It directs FinCEN to research and evaluate innovative methods for detecting illicit activity and the statutory factors it must weigh expressly include privacy risks associated with the information collected. Congress wrote privacy into the standard. A technology that improves detection while reducing privacy risk is precisely what the statute directs FinCEN to favor. Zero-knowledge proofs are exactly that technology. Midnight’s filing is not asking Treasury to invent a new standard. It is pointing Treasury to the standard Congress already wrote.
What This Means for Midnight, USDC, and the Broader Stablecoin Market
The implications extend well beyond Midnight. Every stablecoin issuer that might want to offer privacy-preserving products in the United States faces the same interpretive default risk. Circle’s cirBTC wrapped Bitcoin product and the CLARITY Act’s stablecoin framework are both moving toward a regulated stablecoin market. If the final FinCEN/OFAC rule implicitly requires transparent-chain deployment as the only demonstrable compliance path, any issuer wanting to offer financial privacy to institutional clients faces a structural barrier.
For Midnight specifically, the filing is a declaration that it intends to participate in the US regulated market, not build around it. The selective-disclosure architecture Midnight uses is not designed for jurisdictions that lack compliance frameworks. It is designed to be the most compliant architecture available: cryptographic enforcement over probabilistic detection, pre-settlement blocking over post-settlement reporting, issuer-held viewing keys over public observable ledgers. The Midnight Foundation’s argument is that US regulators should recognize the upgrade, not mistake it for evasion.
The comment period closed June 9, 2026. The Midnight Foundation filing was submitted last month but published July 27. The final rule has not been issued. That window between the comment period and the final rule is the period in which Treasury staff incorporate public comments into the regulatory text. Whether the eight clarifications Midnight requested appear in the final rule will determine whether privacy-preserving stablecoins have a legal pathway to the US market or face the interpretive default that excludes them without ever saying so.
Frequently Asked Questions
What is the GENIUS Act and why does it matter for stablecoins?
The GENIUS Act, signed July 18, 2025, established the first comprehensive US federal framework for payment stablecoins. It treats stablecoin issuers as financial institutions under the Bank Secrecy Act, requiring AML/CFT programs and sanctions compliance. The FinCEN/OFAC proposed rule published April 9, 2026 implements the specifics. Comments were due June 9. The final rule will determine what compliance looks like for any US stablecoin issuer, including privacy-preserving ones.
What is a viewing key and how does it preserve compliance?
A viewing key is a cryptographic credential held by the stablecoin issuer that provides full visibility into transactions involving its token. Regulators and law enforcement can be granted viewing key access for specific investigations or ongoing supervision. This gives authorized parties the same or greater visibility than a public ledger, without exposing transaction data to the general public. Midnight’s filing argues that viewing key access satisfies the regulatory visibility goal the GENIUS Act sets out.
How is ZK-based pre-settlement enforcement stronger than blockchain analytics?
Blockchain analytics works post-settlement. By the time an analytics tool flags a sanctioned wallet, the transaction has already been written to an immutable ledger. ZK-based enforcement works pre-settlement: every transfer must prove neither party appears in the sanctions list before the transaction is executed. If the proof fails, the transaction is rejected before it settles. There is no completed transaction for an evader to profit from. Midnight’s filing argues this is architecturally stronger than the transparent-chain model the proposed rule implicitly assumes.
What is the Garantex example and why does it matter?
Garantex is a Russian cryptocurrency exchange sanctioned by OFAC. The FinCEN/OFAC proposed rule’s own supporting materials note that Garantex operators rotated wallets daily to evade blockchain analytics tools. Midnight uses this in its filing as evidence that the transparent-chain compliance model is already being defeated by sophisticated actors. If the rule’s primary compliance mechanism is already circumvented, requiring all stablecoin issuers to use transparent chains does not improve compliance outcomes. It just excludes better architectures.
Further Reading
The full technical background on Midnight’s selective disclosure model, ZK proof architecture, and how the NIGHT and DUST dual-token system works.
From ZK proofs to real-world use cases to competitive comparison with Aztec and Aleo. The pillar resource for understanding what Midnight is and why it matters.
The CLARITY Act’s stablecoin framework and its relationship to the GENIUS Act rules Midnight is commenting on. The two frameworks will together define what regulated stablecoins look like in the US.
This article is for informational purposes only and does not constitute financial advice. Sources: Midnight Foundation blog post July 27 2026 (midnight.network/blog/compliance-is-about-outcomes-not-architecture-ofac-fincen, primary source), Midnight Foundation comment FINCEN-2026-0100-0022 (regulations.gov, primary source), US Treasury/FinCEN/OFAC joint proposed rule April 9 2026 (Federal Register), Federal Register FINCEN-2026-0100 NPRM April 10 2026, Treasury press release SB0435 April 9 2026 (home.treasury.gov). Published July 22, 2026.
