This week, a bill placed on the Senate calendar introduces provisions that could impact digital asset protocols and tokens. While it doesn't explicitly ban these protocols, its broad scope could become a tool for anti-crypto elements in the US government.

The Senate Select Committee on Intelligence unanimously passed the Intelligence Authorization Act for Fiscal Year 2025 (IAA) in May. This bill, S. 4443, authorizes funding, provides legal authorities, and enhances congressional oversight for the US Intelligence Community (IC).

Section 423 of the bill allows the Secretary of the Treasury to impose sanctions that prohibit transactions between any US person and a "foreign digital asset transaction facilitator" who knowingly facilitates significant transactions with foreign terrorist organizations, designated global terrorists, or other sanctioned entities. The term "foreign digital asset transaction facilitator" is broadly defined and could include any foreign person or group that controls, operates, or assists with digital asset transactions.

Although this does not constitute an outright ban, protocols such as Aave, Uniswap, or stablecoins like USDT could be designated as sanctioned facilitators if they knowingly facilitate prohibited transactions. This would restrict US persons from transacting with them, but a determination of knowingly facilitating such transactions would be required.

Tether has complied with requests to freeze tokens for US-sanctioned entities but has still faced scrutiny. Aave, Uniswap, and others banned wallets interacting with TornadoCash in 2022 to comply with US sanctions. If the Treasury deems previous interactions as "materially assisting" sanctioned entities, this legislation could target them, impacting the crypto industry.

Given the bill's significance, it is likely to pass in some form, though provisions related to digital assets may change. The bill's progress and any amendments will need to be monitored to understand its final impact on digital asset protocols and tokens.

Senator Warner’s office reported that the bill has been favorably moved forward by the Select Committee on Intelligence and placed on the Senate calendar, indicating strong support.

Ultimately, the bill aims to enhance oversight and potential sanctions around digital assets but does not ban major DeFi protocols or stablecoins. Their operations could face restrictions if found to have facilitated prohibited transactions, necessitating careful compliance and fair regulatory treatment.