DeFi bill introduced in Senate would hold major investors responsible for illegal use

DeFi bill introduced in Senate would hold major investors responsible for illegal use

Jul. 19, 2023

By Assad Jafri

Two Democratic lawmakers have put forward a bill to hold primary investors in DeFi protocols accountable for illegal use of the platform.

Senators Jack Reed (D-RI) and Mark Warner (D-VA) have introduced a new bill that aims to combat illicit financial activity like money laundering and terrorism financing in decentralized finance (DeFi), Bloomberg News reported on July 19.

The legislation stipulates that any violations or illegal transactions on a DeFi protocol should be punished to discourage such activity. However, due to the inherent anonymity of DeFi users, the bill wants to make the person controlling the platform liable for any violations.

If a DeFi platform does not have a discernible controller or owner, then the proposed legislation asserts that the liability falls upon those who have heavily invested in the platform. This basket would include venture-capital firms and other notable investors that have invested more than $25 million into the platform.

According to Reed:

“DeFi and crypto ATMs are part of a largely unregulated technology that needs stronger oversight and guardrails to prevent rampant money laundering and sanctions evasion.”

Many of the rules the bill intends to impose on the DeFi platforms are similar to requirements and mandates set for banks and other traditional financial institutions, including requirements around maintaining customer records and reporting suspicious transactions to the Treasury Department. Additionally, the bill includes new rules for crypto ATM operators and would mandate them to verify user identities.