The new bill to regulate the ‘non-regulatory’

TL;DR

• Yesterday, a new bill was introduced to the US Senate titled the “Crypto-Asset National Security Enhancement Act of 2023” that would require DeFi protocols to impose bank-like controls on their users.

• Anyone who “manages” a DeFi protocol or makes an application available to use the protocol “will be on the hook for any fraud or bad actors.”

• After last week’s Ripple ruling, the US government can go either way: push harder for regulation or accept that crypto is indispensable.

• As long as the regulations are fair and equitable, we’ll take them.

Full story

A new bill was introduced to the US Senate yesterday – and it’s… hmmm… interesting.

The bill, titled “Crypto-Asset National Security Enhancement Act of 2023” (a bit of a long title if you ask us) would require DeFi protocols to impose bank-like controls on their users.

Let’s break this down.

The whole idea behind DeFi – decentralized finance – is that there is no individual who has control over the funds flowing through a platform.

Do you remember FTX? That was a centralized exchange. We all know how that story ended.

But UniSwap, PancakeSwap, 1Inch etc – they are all Decentralized Exchanges (DEXs). Once people put their money into FTX, those DEXs (and a host of other DeFi products) just kept going.

The whole point of DeFi is that right there not a single point of failure (i.e. no individual person can make or break a platform or application).

The problem is that that system doesn’t really work for lawmakers.

So here’s what’s being proposed: “Anyone who ‘manages’ a DeFi protocol or makes an application available to use the protocol” will be on the hook for any fraud or bad actors.

“If nobody controls a DeFi protocol, then – as a backstop – anyone who invests more than $25 million in developing the protocol will be responsible for these obligations,” the bill’s brief said.

After last week’s Ripple ruling, the US government can go either way: push harder for regulation or accept that crypto is indispensable.

For now it looks like they’re taking option A, but hey, as long as the regulation is fair and equitable, we’ll take it.