The Crypto Market Structure Bill, DeFi and Money Laundering

Litigation attorney Andrew Balthazor, who co-leads the firm's Crypto Asset Dispute Team, was quoted in a Tax Notes Federal article taking a comprehensive look at the federal government's efforts to regulate the crypto and decentralized finance (DeFi) sectors. Currently winding its way through the U.S. Congress is the Digital Asset Market Clarity (CLARITY) Act, whose goal is to legitimize crypto and incorporate it into the federal financial system. However, debate continues over which sectors to regulate and how, from the very definition of cryptocurrency to whether digital assets are securities under the U.S. Securities and Exchange Commission's (SEC) purview to where DeFi protocols and stablecoins fit into the bill. Andrew talked about accountability mechanisms and dispute resolution processes in the context of DeFi platforms, whose very nature as unsupervised, automatically executing programs prompts resistance to any attempt to insert controls or otherwise interfere with a user's relationship with the protocol – such as the know-your-customer (KYC) and anti-money laundering (AML) rules contemplated in the CLARITY Act. He highlighted the central tension between maintaining DeFi's autonomous design and creating a way to protect consumers and enforce against bad actors.

"Mainstream adoption of innovative systems like DeFi requires accountability and dispute resolution mechanisms," Andrew said. "A responsible approach to regularizing DeFi will include a legal framework for holding appropriate persons or entities to account when DeFi is used for unlawful purposes or the code does not operate as expected, causing harm to users."

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