the CODE Act of 2025 the Compliant Operations of Decentralized Entities Act of 2025
Impact
The bill mandates the Secretary of the Treasury to develop a structured program within six months of enactment. This program will focus on integrating anti-money laundering controls, identity verification, and cybersecurity measures into decentralized smart contracts before they are launched on public blockchain networks. Over an 18-month period, the partnership program will provide recommendations to refine regulatory practices governing decentralized finance, ensuring they align with the requirements of the Bank Secrecy Act. As a result, the bill could fundamentally reshape how decentralized finance operations are regulated, potentially leading to increased accountability and reduced illicit financial activities in the sector.
Summary
House Bill 4394, also known as the Compliant Operations of Decentralized Entities Act of 2025, aims to address the evolving landscape of decentralized finance (DeFi) by establishing a public-private partnership program. This initiative will involve the Secretary of the Treasury and various regulatory agencies collaborating with decentralized finance services to explore innovative solutions for anti-money laundering. The legislation seeks to enhance compliance mechanisms within the DeFi sector, which has been criticized for its vulnerabilities to illicit activities due to a lack of regulatory oversight and standardization.
Contention
One notable point of contention surrounding HB4394 stems from concerns about the balance between innovation and regulation. Proponents argue that the integration of compliance mechanisms is necessary for the legitimacy and security of the DeFi ecosystem. However, critics fear that overly stringent regulations could stifle innovation and limit the accessibility that decentralized finance offers. Additionally, there is an underlying debate about who can participate in the public-private partnership, as the bill prohibits certain individuals deemed 'covered persons' from involvement, possibly excluding key stakeholders in the DeFi space.