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Congress Holds Flurry of Crypto Debanking Hearings
What happened?
Senate Banking Committee Hearing on Debanking
On February 5th, the Senate Banking Committee held a hearing entitled, “Investigating the Real Impacts of Debanking in America.” The hearing highlighted a strong bipartisan interest in preventing debanking and protecting civil rights. Committee Chairman Tim Scott (R-SC) opened the hearing by sharing a personal anecdote on the importance of financial inclusion and access to financial services as a central aspect of the American dream, condemning Operation Chokepoint 2.0. Ranking Member Elizabeth Warren (D-MA) opened by calling debanking a “real problem” and expressing a desire to work across the aisle on the issue, noting civil rights concerns on bank account closures and stressing the importance of the Consumer Financial Protection Bureau’s (CFPB) work to prevent unfair debanking. However, Ranking Member Warren also encouraged federal regulators to enhance anti-money laundering (AML) regulations so that banks would have “reduced incentive” to use debanking as a form of risk management.
Testimony featured Nathan McCauley, CEO of Anchorage Digital; Stephen Gannon of Davis Wright Tremaine LLP; Mike Ring, CEO of Old Glory Bank; and Aaron Klein, Senior Fellow at Brookings Institution. Witness testimony featured detailed discussion on Operation Chokepoint 2.0, denial of demand deposit services for crypto banking, weaponization of government, Federal Deposit Insurance Corporation’s (FDIC) crypto pause letters, and critical discussion of AML policy.
The hearing focused on AML policy and its connection to debanking, particularly under the Bank Secrecy Act (BSA) framework. To underscore the issue of debanking, the Democratic witness, Aaron Klein, testified that “10% of American households are currently unbanked or were unbanked at some point within the last year. Not having a bank account adds significant cost…... and makes it impossible to fully participate in America’s increasingly digital economy.” Klein advocated for reforming BSA requirements by adjusting the Currency Transaction Report (CTR) threshold from $10,000 (set in 1972) to account for inflation. He noted banks now file 2.5 million Suspicious Activity Reports (SARs) annually—10 times more than 20 years ago—and that AML costs drive banks to keep high-profit customers while debanking low-profit customers. Senator Jack Reed (D-IL) pressed Ring on crypto’s role in illicit finance, asking if it should be more tightly regulated. Ring argued the BSA overly delegates AML enforcement to banks, calling it a “trojan horse for debanking.”
Klein repeatedly criticized the AML system’s inefficiency, stating, “we are reporting too much information that is not useful,” noting that banks now treat AML fines as a cost of doing business. In an exchange with Senator Andy Kim (D-NJ), Klein emphasized that banks prioritize “quantity over quality” in SAR filing, likening the AML system to “blowing air into the system” instead of effectively tracking illicit activity. Senator Kim concluded by acknowledging that “over-reporting” is a key factor in debanking and supported raising the CTR threshold.
Senator Bill Hagerty (R-TN) questioned Stephen Gannon on how the BSA regime can balance the legitimate needs of law enforcement with the risks of unwarranted account closures which have occurred. Gannon responded that the partnership between the banks and regulators needs to improve data collection rather than “sending armies of people to do SARs and CTRs.” And, Senator Ruben Gallego (D-AZ) asked Nathan McCauley about Anchorage Digital’s AML compliance reporting system to detect suspicious activity. McCauley explained that they have a robust system to combat illicit financial activity, taking advantage of the transparent nature of blockchain networks to detect bad actors.
Senator Bernie Moreno (R-OH) wrapped up the hearing by pursuing a line of questioning directed specifically at the flawed yet widely held assumptions about crypto’s involvement in illicit financial activity. Senator Moreno rhetorically asked “what type of cryptocurrency did Al Capone use?” To which McCauley responded, “primarily the privacy coin known as the US Dollar.” Then, Senator Moreno posited: “maybe money laundering wasn’t invented by digital currency.”
Overall, the DEF team believes that the hearing showcased significant bipartisan interest in increasing access to financial services, as well as the value of limiting the ability of financial intermediaries to unreasonably debank American citizens and businesses (especially pertaining to the use of AML to justify account closures). While Members expressed varying perspectives on how to address the issue, all witnesses appeared to uniformly agree that AML statutes are currently flawed in their implementation and can play a role in debanking.
HFSC Hearing on OCP 2.0
On February 6th, The House Financial Services Committee’s (HFSC) Oversight and Investigations Subcommittee, chaired by Representative Dan Meuser (R-PA), held a hearing on Operation Choke Point 2.0 examining allegations that federal banking regulators, particularly the FDIC, pressured financial institutions to cut ties with digital asset firms. Chair Meuser noted that, if true, this was “a serious overreach, one that not only undermined innovation, but directly harmed consumers by restricting their access to new and beneficial financial products.” Chairman Meuser said he would continue to monitor the actions of the FDIC, and determine legislative solutions to prevent this kind of abuse of power again.
Frederick Thiel, CEO of MARA, countered that crypto firms were being unfairly denied financial services despite compliance with U.S. regulations. He highlighted that multiple banks closed accounts of digital asset companies without clear justification. “Despite following every local, state, and federal law, MARA and other companies in the digital asset space have been systematically denied access to financial services,” Thiel stated. He warned that restricting access to banking services was forcing innovation offshore and undermining national security.
Austin Campbell, CEO of WSPN USA and Managing Partner at Zero Knowledge Consulting, criticized the lack of transparency in financial regulation, arguing that banking regulators wield too much discretionary power in deciding which industries can access financial services. “Banking regulators have the power to shut off financial services to entire industries, and they do it behind closed doors,” Campbell testified. He proposed that all banking regulations should be written and public, rather than relying on verbal or informal guidance. He also called for banks to be required to issue written explanations when closing accounts, stating, “If a bank fires a customer, they should have to tell them why, in writing.”
Paul Grewal, Chief Legal Officer at Coinbase, provided evidence that the FDIC pressured banks through informal “pause letters,” directing them to halt all crypto-related activities indefinitely. “Regulators weaponized banking access by sending letters to financial institutions directing them to stop engaging with crypto businesses,” he said. Grewal argued that these backroom tactics created regulatory uncertainty and unfairly targeted a legal industry.
What does this mean?
Debanking undermines financial inclusion, limits equal access to services, and hinders the viability of innovative industries, as evidenced by Operation Chokepoint 2.0 directed at digital asset businesses. Bipartisan efforts to protect financial access are promising. This issue also underscores DeFi’s importance in providing open, transparent access to financial services for everyone. We appreciate Congress’s focus on these critical issues.
Congress Announces Crypto Roadmap
What happened?
On February 4th, David Sacks, the White House Crypto and AI Czar, held a press conference with Senate Banking Committee (SBC) Chair Tim Scott (R-SC), House Financial Services Committee (HFSC) Chair French Hill (R-AR), Senate Agriculture Committee Chair John Boozman (R-AR), and House Agriculture Committee Chair GT Thompson (R-PA). The press conference presented a collaborative effort to advance legislative clarity for digital assets and rolled out a Bicameral Working Group on Digital Assets to advance market structure and stablecoin legislation, which Sacks stated are top priorities. Sacks promised to collaborate with members to create a “golden age” for digital assets in the United States. SBC Chairman Scott stated that he plans to lead with stablecoins and hopes to pass the legislation in President Trump’s first 100 days.
Stablecoin Legislation
Prior to the press conference, Senator Bill Hagerty (R-TN) proposed a Bipartisan Stablecoin Bill in the Senate, entitled Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The GENIUS Act, introduced by Senators Hagerty, Scott, Kirsten Gillibrand (D-NY), and Cynthia Lummis (R-WY), creates a clear regulatory framework for payment stablecoins.
Under the GENIUS Act, the term “payment stablecoin” refers to a digital asset that “is designed to be used as a means of payment or settlement” and whose issuer “is obligated to convert, redeem, or repurchase for a fixed amount of monetary value” and “represents [it] will maintain or creates the reasonable expectation that it will maintain a stable value relative to the value of a fixed amount of monetary value.” Monetary value is defined as a “national currency or deposit” that is “denominated in a national currency” (as defined under Section 3 of the Federal Deposit Insurance Act), therefore exempting decentralized stablecoins from the legislation. Under the proposed law, federally approved nonbank issuers, subsidiaries of insured banks, and state-qualified issuers can legally issue stablecoins.
Any entity attempting to issue them without approval faces fines of up to $100,000 per day. All stablecoins issued under the GENIUS Act framework must be backed 1:1 by cash, insured bank deposits, or short-term U.S. Treasuries, with strict prohibitions against lending or rehypothecating these reserves. Stablecoin issuers would also be required to maintain transparent public disclosures, undergo third-party audits, and ensure that customer funds remain separate from company assets.
Regulatory jurisdiction over issuers is divided among several federal agencies: the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation, and the National Credit Union Administration.
State regulators can oversee issuers, but only if their standards are substantially similar to federal requirements. If a state-regulated issuer grows beyond $10 billion in market capitalization, it must transition to federal supervision to ensure it meets national regulatory standards.
To clearly define jurisdictional responsibilities, the bill amends federal law to clarify that payment stablecoins are not securities or commodities, preventing direct SEC or CFTC oversight. Additionally, in cases of insolvency, stablecoin holders receive priority claims, ensuring they are protected before other creditors. The bill directs regulators to develop interoperability standards so stablecoins can function seamlessly across different payment systems.
As a continuation of stablecoin efforts, on February 6th, Representative French Hill (R-AR) and Representative Bryan Steil (R-WI) released a discussion draft of their stablecoin bill, entitled the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act.
The STABLE Act has many similarities with the GENIUS Act. The STABLE Act builds on the efforts of former HFSC Chair, Patrick McHenry, to provide multiple regulatory pathways for payment stablecoin issuers in the United States and aims to regulate the issuance and use of payment stablecoins in the U.S. financial system.
Similarly to the GENIUS Act, the STABLE Act defines a “payment stablecoin” as a digital asset designed to be used as a means of payment or settlement. The issuer of the stablecoin must be obligated to convert, redeem, or repurchase it for a fixed amount of “monetary value,” or create a reasonable expectation that it will maintain a stable value relative to a fixed amount of “monetary value.” And the STABLE Act maintains the same definition of “monetary value” as defined in the GENIUS Act as a “national currency or deposit” that is “denominated in a national currency.”
The discussion draft establishes regulatory requirements for stablecoin issuers, ensuring they maintain 1:1 reserve backing, comply with liquidity and capital requirements, and adhere to anti-money laundering (AML) and consumer protection laws, namely the BSA. The discussion draft also limits who can issue stablecoins, requiring issuers to be either insured depository institutions, federally approved nonbank entities, or state-qualified issuers.
The legislation assigns oversight roles to federal and state regulators, introduces strict transparency and audit requirements, and enforces penalties for non-compliance. This framework is intended to enhance financial stability, consumer protection, and innovation in digital payments.
The primary difference between the two is that where the GENIUS Act envisions a stronger emphasis on federal oversight, requiring state issuers exceeding $10 billion in market cap to transition to federal regulation, the STABLE Act allows state issuers to remain under state supervision unless federal regulators intervene in exigent circumstances.
Bipartisan House Resolution Supportive of Blockchain
On February 5th, Representatives Dusty Johnson (R-SD), Bryan Steil (R-WY), Don Davis (D-NC), and Ritchie Torres (D-NY) introduced a bipartisan House Resolution expressing congressional support for blockchain technology and digital assets. The legislation recognizes blockchain as “the next generation of the internet” and acknowledges that digital assets have “the potential to be the foundational building blocks” of decentralized networks, aligning economic incentives for collaboration.
The resolution highlights how blockchain technology can “enhance transparency, reduce transaction costs, and increase efficiency” while also serving as a tool for law enforcement to “identify illicit activity and bring criminals to justice.” Additionally, it emphasizes the role of digital assets in fostering financial inclusion and innovation. The resolution warns that without clear legal frameworks, digital asset companies may relocate to other countries that “embrace the potential of blockchain technology and digital assets” while providing stronger regulatory clarity. To maintain its competitive edge, the U.S. must “strive to be a global leader in the development and adoption of digital assets and blockchain technology.” The resolution urges Congress to establish a regulatory framework that is “tailored to the specific risks” of digital assets while maintaining “longstanding investor protections” to ensure a fair, secure, and thriving digital asset ecosystem.
What does this mean?
DEF applauds these efforts of Congress and will continue to ensure the protection of DeFi as Congress advances legislation in these emerging areas.
SEC Commissioner Hester Peirce Press Release on Crypto Task Force
What happened?
On February 4th, Securities and Exchange Commission (SEC) Commissioner Hester Peirce released a statement which outlines steps that the SEC’s Crypto Task Force plans to embark on a “new journey toward regulatory clarity.” Peirce outlined 10 priorities that the Task Force intends on achieving, including delineating different types of crypto assets, determining the SEC’s jurisdictional scope, crypto-lending and staking programs, cross-border sandbox programs, and more. Peirce acknowledged that, under the SEC’s policies of the former administration, the Commission “refused to use regulatory tools at its disposal and incessantly slammed on the enforcement brakes as it lurched along a meandering route with a destination not discernible to anyone.” Peirce said in her statement that, not only will the Crypto Task Force undertake this journey with SEC staff, but the Commission will also engage “enthusiastic members of the public” to craft a more well-rounded approach to regulating crypto.
What does this mean?
Commissioner Peirce’s statement provides a clear outline of the objectives that the SEC has in mind as it attempts to provide regulatory clarity for digital assets. DEF is eager to see a new approach to regulation at the SEC than crypto experienced under the last administration. DEF applauds Commissioner Peirce for working to provide greater transparency and regulatory certainty to the crypto community and for her commitment to a transparent process that puts public feedback at its center.
DEF’s Miller Whitehouse-Levine and Amanda Tuminelli Publish op-ed as part of an A16z Crypto’s “Making the U.S. the crypto capital: What it would take.”
Miller and Amanda’s blog “Why the Department of Justice’s actions against DeFi are a wreck” focuses on a central question from which all other policy and legal questions must flow: Who is in control? The article dives into prosecutions of DeFi protocols which rest on faulty assumptions about who is exercising control, and what level of control they have, causing unnecessary harm to blockchain development.
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