Bipartisan Bill to Regulate DeFi, Crypto Introduced in US Senate

• A bipartisan bill sponsored by US Senator Jack Reed was introduced in the Senate on July 18.
• The bill seeks to tighten KYC and AML regulations, along with sanctions requirements for DeFi.
• DeFi has been recognized as similar to “centralized crypto trading platforms, casinos, and even pawn shops.”
• If a DeFi project is not controlled by anyone, the entity with $25 million in investments will be responsible.

A bipartisan bill to regulate the decentralized finance (DeFi) and crypto industries has been introduced in the United States Senate. This bill comes during a tough time for the digital asset industry, as the US Securities and Exchange Commission (SEC) has been practicing regulation and enforcement in the sector. Many crypto firms have ceased operations in the country under the Biden administration

According to the official documentation, the bipartisan bill, sponsored by United States Senator Jack Reed from Rhode Island, will tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, along with sanctions requirements for decentralized finance (DeFi). The bill was submitted on July 18 to the Senate

Interestingly, the bipartisan bill would recognize the decentralized finance (DeFi) industry as similar to “other financial companies, including centralized crypto trading platforms, casinos, and even pawn shops.” The bill would make “anyone who controls that project” liable for the use of the DeFi service by sanctioned persons.

Additionally, the bipartisan bill confirmed that if “nobody controls a DeFi service, then, as a backstop, anyone who invests more than $25 million in developing the project will be responsible for these obligations.” Moreover, the bill also seeks to “modernize” Treasury Department AML powers by extending them beyond the traditional finance industry.

“As new technologies like cryptocurrency increasingly enable new ways to conduct financial transactions, it is critical to extend the Treasury’s authority to crack down on illicit financial activity that may occur outside the banking sector,” the bipartisan bill states.

There will be a lot of tweeting today about the CANSEE Act proposed by Reed, Warner, Rounds, and Romney, and after my first time through it all I’m going to say is it’s colossally stupid and bad. I don’t even know where to begin, so I won’t.

— Meat (🥩,🥩) (@MeatEsq) July 19, 2023

The Crypto Council for Innovation (CCI) stated that the bipartisan bill “places legal obligations arbitrarily on persons who have no actual way to influence protocols once they are deployed, and completely fails to account for the unique attributes of blockchain-backed s.”

1/ Today, @SenJackReed, @SenatorRounds @SenatorWarner and @SenatorRomney intro a bill to apply AML and sanctions obligations to “backers” and “facilitators” in the DeFi space, along with new and onerous requirements for crypto ATMs.

— Crypto Council for Innovation (@crypto_council) July 19, 2023

“It is not feasible to collect personal identification information from such protocols, and the bill neither tackles this technical complexity nor provides solutions on how to address this limitation. While it is important to deter illicit finance activity, including in the DeFi eco, this proposal does not provide a practical way to do so,” said the CCI.

As per an earlier report from Bitnation, US Senate Financial Committee Chair Ron Wyden asked the crypto community how to tax crypto. In an open letter, Wyder said that his Committee is looking into solutions for complex taxation issues.