New Bill Aims to Regulate DeFi Protocols: What You Need to Know!
The world of decentralized finance (DeFi) is about to undergo some major changes as the U.S. Senate prepares to introduce a new bill that focuses on regulating the crypto industry.
Gone are the days of the Wild West in the crypto space. With the proposed Crypto-Asset National Security Enhancement Act of 2023, backed by bipartisan support, DeFi protocols will soon be subject to strict anti-money laundering (AML) measures.
The challenge of regulating DeFi
DeFi protocols have revolutionized the way users engage in crypto borrowing, lending, and trading. However, their operation on permissionless blockchains presents a unique challenge for regulators. But fear not, because the proposed bill released on July 18 has a plan in place.
The bill focuses on those who exert control over DeFi protocols or offer user-friendly interfaces for their smart contracts. This means that entities like Uniswap Labs, which facilitate Ethereum's primary decentralized exchange, will have to comply with regulatory obligations.
Under the bill, if a DeFi protocol lacks central control, any entity that invests over $25 million in its development will be responsible for meeting regulatory requirements. These requirements include customer screenings, anti-money laundering programs, reporting suspicious activities, and blocking access for sanctioned individuals.
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The bill doesn't stop at DeFi protocols. It also includes identity verification requirements for crypto kiosks and expands the authority of the Treasury Department to combat money laundering in unconventional financial sectors, including crypto assets.
SEC's role in crypto regulations
Regulating DeFi has been a hot topic of discussion, even within the United States Securities and Exchange Commission (SEC). Chair Gary Gensler made it clear that many crypto platforms, including DeFi systems, should comply with existing regulations on securities exchanges.
While calling yourself a DeFi platform doesn't exempt you from securities laws, the SEC is aware of the need for clarity. They plan to evaluate each case based on the nature of the activities involved, without establishing a formal definition for DeFi itself. This new bill suggests that clear regulations for exchanges and DeFi protocols are on the horizon.
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