The US Senate’s Proposal to Regulate DeFi as Banks: A Threat to Decentralization

The US Senate building
The US Senate building

The US Senate is poised to introduce a new bill that seeks to subject decentralized finance (DeFi) to bank-like regulations. This legislation aims to incorporate anti-money laundering (AML) requirements into DeFi protocols, citing concerns about potential criminal activities. However, this move contradicts the fundamental principles of DeFi, which thrive on decentralization and autonomy.

Imposing Centralized Regulation on Decentralized Finance

The proposed bill suggests a troubling shift in the regulation of DeFi, essentially treating it as a traditional financial institution. Under this legislation, individuals investing more than $25 million in developing DeFi protocols would bear the burden of complying with AML obligations. They would be required to collect customer information and implement AML programs, effectively centralizing control and transforming DeFi into a regulated entity.

The Threat to Decentralization

DeFi has gained traction for its ability to operate outside the confines of traditional finance, empowering individuals with financial freedom and autonomy. By subjecting DeFi to bank-like regulations, the Senate bill undermines the very essence of decentralization. It contradicts the core values of transparency, censorship resistance, and open access that DeFi stands for. Regulation would stifle innovation and limit the potential of this groundbreaking technology.

Concerns about Criminal Activity

While the bill claims to target potential criminal activity, it is important to note that DeFi is not inherently prone to illicit actions. Criminal elements exist in all sectors, including traditional finance. However, this should not be used as a pretext to impose heavy-handed regulations that hinder the growth and potential benefits of DeFi. Existing legal frameworks can adequately address criminal activities without compromising the decentralized nature of DeFi.

The Supporters of the Bill

Jack Reed, the author of the bill
Senator Jack Reed

The bill, introduced by Senator Jack Reed of the Senate Banking Committee, has gained support from Senators Mike Rounds, Mitt Romney, and Mark Warner. While their intentions may be to protect consumers and combat illicit activities, it is crucial to consider the unintended consequences of imposing centralized regulations on a decentralized industry.

Striking a Balance

Rather than stifling innovation, policymakers should strive to strike a balance that ensures the integrity of the financial system while preserving the core principles of DeFi. Collaborative efforts between regulators and the DeFi community can lead to more nuanced solutions that address concerns without compromising decentralization. Education, industry standards, and self-regulatory initiatives can be crucial in fostering a responsible DeFi ecosystem.


The proposed US Senate bill to regulate DeFi as banks pose a significant threat to the decentralized nature of this innovative industry. While addressing concerns about criminal activities is essential, imposing heavy-handed regulations undermines the very essence of DeFi. It is imperative for policymakers to carefully consider the potential consequences and explore alternative approaches that preserve the autonomy and potential of DeFi while addressing legitimate concerns.

Stay tuned and alert for more updates on this situation.

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