New US Bill Could Target Decentralized Protocols

A new bill has been introduced in the Senate that could create grounds for unfair treatment of open source decentralized protocols. The Intelligence Authorization Act for Fiscal Year 2025 passed the Senate State Affairs Committee and was unanimously approved.

Section 423 of the bill concerns cryptocurrencies and decentralized protocols, using language to broadly address assets and dApps, providing the impetus to impose sanctions if they interact with illicit wallets and funds. The bill uses the term ‘foreign digital asset transaction facilitators’ and discusses sanctions on these entities that provide services to users in the United States if they do not stop illicit financial flows.

It is highly likely that this bill will be passed and become law next year, but it is questionable how much of it will be implemented into law. Lawmakers may recognize the detrimental impact this could have on the cryptocurrency industry and force change, even if not remove the section. If passed as is, the Intelligence Authorization Act could be weaponized by anti-crypto legislators to take down some of the biggest protocols and companies in the industry.

Decentralized protocols are generally decentralized because they do not restrict the flow of funds in a wallet. Open access allows any user to utilize their funds to leverage their utility, regardless of whether the funds were obtained illegally or not. Therefore, if this bill is passed in its current state, the government will have the ability to eliminate numerous dApps.

The cryptocurrency community has been strongly opposed to government bans on protocols and code. US authorities’ approval of Tornado Cash led many cryptocurrency enthusiasts to call on the government to ban the code. Tornado Cash has been used to launder millions of dollars in criminally obtained funds, but most protocols have seen use by not-so-notorious users.

The bill does not contextually say what kinds of protocols would be banned, such as tumblers and mixers used by most cybercriminals. This leaves room for the ban of any protocol that deals with even a small fraction of funds obtained through crime.

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