A bill introduced in the Senate could significantly affect digital asset protocols and tokens. Although it doesn’t explicitly ban these protocols, its broad provisions could be used against crypto interests. The Senate Select Committee on Intelligence unanimously passed the Intelligence Authorization Act for Fiscal Year 2025 (IAA), which provides funding and oversight for the US Intelligence Community.

Section 423 of the bill allows the Secretary of the Treasury to impose sanctions on US persons who transact with a "foreign digital asset transaction facilitator" that has knowingly dealt with sanctioned entities, including terrorist organizations. This broad definition could potentially include protocols like Aave, Uniswap, and stablecoins like USDT if they are found to have facilitated such transactions. However, the bill does not ban these protocols outright; sanctions would apply only if they are proven to have knowingly facilitated prohibited transactions.

The bill defines a "foreign digital asset transaction facilitator" as any foreign person or group that controls or operates a digital asset protocol or materially assists in digital asset transactions. Despite Tether's compliance with US-sanctioned requests, it and other protocols like Aave and Uniswap, which banned wallets interacting with TornadoCash in 2022, could be targeted under this legislation if past interactions are deemed to have materially assisted sanctioned entities.

Given the bill’s significance and its progress through the legislative process, it is likely to pass in some form. The exact impact on digital assets and protocols will depend on the final provisions and any amendments. Senator Warner’s office reports that the bill has strong support and is moving forward.

While the bill aims to enhance oversight and potential sanctions around digital assets, it does not outright ban major DeFi protocols or stablecoins. These entities could face restrictions if found to have facilitated prohibited transactions, emphasizing the need for careful compliance and fair regulatory treatment.