Key points to remember
- Coin Center responded to the US Treasury’s “DeFi Illicit Finance Risk Assessment” report.
- The crypto advocacy group slammed the Treasury for assuming that all DeFi protocols are not compliant with AML regulations.
- However, he commended the report for acknowledging that DeFi poses little risk of illicit activity compared to traditional banking.
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The US Treasury believes that DeFi protocols are de facto non-compliant with AML regulations. Coin Center published a report challenging this notion.
Respond to Treasury complaints
The US Treasury Department has released a “DeFi illicit finance risk assessment” report yesterday. The crypto industry now provides its answer.
Today, the Coin Center cryptocurrency advocacy organization released an analysis of the Treasury report. The article, titled “Treasury’s New DeFi Risk Assessment Draws on Ill-Fit Frameworks and Makes Potentially Unconstitutional Recommendations,” asserts that the Treasury’s position tends to take for granted that all decentralized finance protocols do not do not comply with anti-money laundering regulations.
According to Coin Center, the biggest problem with the Treasury report is that it assumes that every DeFi project does not comply with the Bank Secrecy Act, whether or not the protocol is actually obligated to comply. Coin Center argued that the government, instead of bundling all DeFi protocols together, should start differentiating between projects based on the services they provide. For example, a protocol allowing the trading of commodity derivatives and a protocol allowing the transmission of currencies must comply with different AML regulations.
Coin Center also criticized the report for repeatedly downgrading the notion of “noncustodial” protocols, which would exempt DeFi developers from having to comply with BSA regulations. The report “leaves the reader to suspect that these people have found an insidiously clever loophole rather than simply go out and exercise their constitutional rights to publish innovative research and software,” the advocacy group claimed.
Nonetheless, Coin Center praised the report for acknowledging that most illicit funding is not conducted using DeFi protocols, but through the traditional banking sector. For example, non-compliant international centralized crypto exchanges such as FTX have been shown to pose much greater money laundering risks.
Disclosure: At the time of writing this article, the author of this article owned BTC, ETH, and several other crypto assets.