- Coin Center responded to the US Department of the Treasury’s “DeFi Illicit Financial Risk Assessment” report.
- Crypto advocacy groups have criticized the Treasury Department for assuming that all DeFi protocols are not compliant with AML regulations.
- However, he praised the report for acknowledging that DeFi presents little risk of illegal activity compared to the traditional banking sector.
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The US Treasury believes that DeFi protocols are effectively non-compliant with AML regulations. Coin Center has published a report challenging that notion.
Responding to requests from the Ministry of Finance
The U.S. Treasury Department has issued a “DeFi Illicit Financial Risk Assessment”. report yesterday. The crypto industry is now offering its counterpart.
Today Crypto Advocacy Group Coin Center release Analysis of Treasury report. The article, titled “Treasury’s new DeFi risk assessment relies on an inadequate framework and makes potentially unconstitutional recommendations,” said the Treasury’s stance is: It argues that all decentralized financial protocols tend to assume that they are not compliant with anti-money laundering regulations.
According to Coin Center, the biggest problem with the Treasury report is that it assumes that all DeFi projects are not compliant with bank secrecy laws, regardless of whether the protocol is actually obligated to comply. Coincenter argued that the government should start differentiating projects by the services they provide rather than lumping all DeFi protocols together. For example, a protocol that enables commodity derivative trading and a protocol that enables the transmission of currency must comply with different AML regulations.
Coin Center also criticized the report for repeatedly demeaning the notion of a “non-custodial” protocol that would remove DeFi developers from having to comply with BSA regulations. “It leaves readers with suspicions that it not only exercised its constitutional right to publish software, but also found a clever loophole,” the advocacy group claims.
Despite this, Coin Center applauds the report, which admitted that most of the illicit finance is not done using DeFi protocols, but through the traditional banking sector. For example, non-compliant global centralized crypto exchanges such as FTX have been shown to pose a much greater money laundering risk.
Disclosure: At the time of writing, the author of this work owned BTC, ETH, and several other crypto assets.