According to a preliminary description, the new Cryptoasset National Security Enhancement Act of 2023 would require DeFi protocols to apply bank-like controls to their users.
A US Senate briefing notes that the bill would reduce the growth of digital asset crime, as well as cut off any opportunities for sanctions evasion or money laundering. The measure is key to US national security.
DeFi protocols are financial applications that allow cryptocurrency wallet owners to conduct transactions using smart contracts. DeFi are more difficult to regulate than centralised financial companies as they directly operate public blockchains. The new bill will address these issues by setting requirements by the regulator for the protocol.
The briefing also states that in the absence of protocol controls, users who invest more than $25mn in DeFi will automatically become responsible persons.
Appointed controlling authorities would need to verify and collect customer information, support anti-money laundering programmes, report suspicious activity to the government, and block sanctioned individuals from using the protocol.
The new bill also establishes identity verification requirements for cryptocurrency exchanges. The measure would expand the Treasury Department’s authority to prosecute money launderers.