The Treasury Department under the US Government issued new regulations for cryptocurrency wallets. These rules would require exchanges to collect personal information, which would likely impact decentralized finance (DeFi) projects and users.
The Financial Crimes Enforcement Network (FinCEN), part of the US Treasury Department, proposed the new rules that would require banks and money service businesses to submit reports, keep records, and verify the identity of customers who make crypto transactions into private wallets.
As an example, if you are a cryptocurrency investor, and you want to transfer some money from your account on an exchange (say, Coinbase) to your own private wallet, you will have to identify yourself as the wallet’s owner, for any transfer more than $3,000. And if you want to do business with someone who has a private wallet, you need to tell the exchange detailed personal information.
Additionally, if you make a total of more than $10,000 in transactions in one day, the exchange has to report your personal information. Under FinCEN’s proposed regulations, the exchanges have to store records of all this and turn them over on request.
It isn’t clear how the exchanges might actually implement the new regulations. But if materialized, this will likely impact DeFi projects, which rely on smart contracts to store or escrow funds.
DeFi Likely Hit by Crypto Wallet Regulation
The new crypto wallet regulation could throw the DeFi space into a legal gray area, a market observer told CoinDesk.
“It could create a situation where the only way to use DeFi protocols is to be outside the US,” Jeremy Allaire, CEO of USDC stablecoin co-issuer Circle said. “This could even affect the Ethereum 2.0 staking contract.”
To run a node, Ethereum 2.0 users must send 32 ETH, or about $20,000, to the smart contract. The amount is well over the transaction limit under the new regulations.
The new rules have gone out for public comment until Jan 4, 2021. Crypto companies, such as Coinbase, have begun preparing comment letters responding to the proposed regulations.
Additionally, the White House has released a statement on regulatory considerations for stablecoins. US President Trump’s working group on financial markets published a report on how it views retail payments using stablecoins. Stablecoins must meet the same regulatory standards as other aspects of the financial system, the document said.