A new bipartisan bill has been introduced in the US that requires DeFi projects to comply with KYC (Know Your Customer) regulations. If a DeFi protocol does not have an identifiable controller, people who have invested over $25 million in its development will be held liable. US lawmakers from both parties are fed up with terrorists and criminals using decentralized finance (DeFi) platforms to launder money. If this bill becomes law, DeFi will have to start taking money laundering seriously. This measure taken for the DeFi field is closely related to DeFi coins such as AVAX, LINK, UNI, LDO. Here are the details…
New bill is coming in the USA
The broader crypto ecosystem has had to comply with strict anti-money laundering (AML) requirements in recent years. Crypto has seen an influx of money of dubious origins as criminals seek ever easier ways to clean up their dirty money. One sector of Web3 that has so far escaped without much scrutiny has been DeFi. But now that seems to be changing. The new bipartisan bill, S.2355, is called the Cryptoasset National Security Enhancement Act of 2023. Senator Jack Reed, a member of the Senate Banking Committee, introduced the bill on Tuesday. Co-sponsors include Senators Mike Rounds, Mitt Romney and Mark Warner.
The aims of the bill are very clear. It aims to “clarify the applicability of sanctions and anti-money laundering compliance obligations against U.S. persons in the decentralized fintech sector and virtual currency operations.” As a result of the bill, DeFi organizations in the United States will no longer be able to claim their ignorance if suspected breaches are revealed. The legislation sets out strict rules on compliance with anti-money laundering (AML) laws. If no one owns a DeFi operation, then anyone who has invested more than $25 million will be in focus for any breach.
Are the restrictions too strict?
According to a statement from Senator Warner’s office, the bill will force DeFi firms and individuals to meet the same requirements as centralized exchanges, casinos and pawn shops. The bill also aims to “modernize” the Treasury Department’s AML resources and functions. S.2355 will force DeFi protocols to more carefully scrutinize and report on their operations. Given DeFi’s decentralization, this imperative can place a heavy burden on many market players.
The bill may sound rigid, but money laundering has been a growing concern in the crypto world. According to the latest annual Crypto Crime Report by Chainalysis, cryptocurrency laundering hit an all-time high in 2022. cryptocoin.com As we have also reported, the figures, which were 14.2 billion dollars in the previous year, reached 23.8 billion dollars last year. In the UK, a global financial hub, crypto firms have reported a notable increase in this practice. A full 28 percent of crypto firms have reported an increase in Suspicious Activity Reports (SARs) in the past six months.
How will AVAX and these coins be affected?
Even the big companies of the sector do not escape scrutiny. In June, French authorities launched a money laundering investigation against Binance, the world’s largest centralized crypto exchange. Binance denied any wrongdoing. However, Binance soon faced more regulatory issues in Belgium. Authorities violated Belgium’s legislation by acting on allegations that malicious people were using the platform from outside the European Economic Area.
The arrival of regulatory clarity marks a positive development for DeFi coins like AVAX. However, the fact that regulations introduce centrality and go against the free spirit of crypto risks alienating some investors from the field. The most popular cryptocurrencies in the DeFi space are as follows:
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