On Wednesday, a new bill was introduced by a group of bipartisan senators that would require decentralized finance (DeFi) services to comply with the same rules that apply to financial companies like centralized crypto exchanges and banks.
The legislation
Democrat Jack Reed sponsored the legislation in question and it is aimed at controlling drug traffickers, criminals, and hostile state actors, such as North Korea.
A description of the said bill said that decentralized finance had been used by these people for nefarious activities.
The new bill was called the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act and its implementation would require services in the DeFi sector to comply with US economic sanctions and AML rules.
Referred to as DeFi, decentralized finance encompasses services that are provided via smart contracts and do not need financial intermediaries, while existing on-chain.
Renowned lending protocol, Aave, and the exchange Uniswap are two of the well-known names in the world of DeFi.
Penalties would be applicable on anyone controlling a DeFi service if their services are used by a sanctioned individual to avoid US sanctions.
Anyone with more than $25 million worth of investment in a DeFi project would be considered in control of it if there is no other single identity that can be identified in control.
The details
Overall, the purpose of the bill is to provide greater authority to the US Treasury Department for dealing with illicit financial activity that may not be part of the banking sector.
The Congress website does not have the full text of the bill available as yet. Crypto ATMs have been highlighted in the description of the bill as one of the areas that would be targeted.
These kiosks can be used by people for buying crypto via debit cards or cash. This means that operators would first be required to identify those carrying out the transactions.
The sponsors
Republican Mike Rounds and Mitt Romney and Democrat Mark Warner co-sponsored the DeFi legislation.
They said that the legislation was necessary for protecting the national security of the United States.
Mark Warner stated that they were concerned about the use of crypto by rogue states and criminals for laundering money, hiding illicit transactions, and evading sanctions.
He added that those playing by the rules would not have a problem benefitting from the potential that crypto has to offer.
There is also a reference to fentanyl trafficking in the description of the bill, as it argues that DeFi has been extensively used by bad actors for fueling their illicit trade.
These sentiments also echo the concerns that had been highlighted by Democrat Elizabeth Warren earlier.
In the past, the US Treasury Department has taken aim at some decentralized protocols. Last year, Tornado Cash, the coin-mixing tool, had been sanctioned.
Coin Center, the crypto advocacy group, has filed a lawsuit against the department for doing so, as it argues that the DeFi project has been unfairly penalized and it could set a dangerous precedent.