- Galaxy Research warns a Senate Banking draft would give Treasury broad new tools to curb illicit finance in crypto.
- The proposal would expand “special measure” authority and allow temporary transaction holds without a court order.
- “This is a transaction-interruption lever…” — the bill pairs holds with a safe harbor for compliant firms.
- The draft would require Treasury to clarify sanctions and AML obligations for decentralized frontends and a defined “distributed ledger application layer.”
- Industry leaders flag unresolved privacy, payroll, and state-law gaps that could limit real-world adoption.
Galaxy Research issued a warning Tuesday about a Senate Banking Committee discussion draft, saying new provisions would give the U.S. Treasury sweeping powers over digital-asset activity to fight illicit finance. The draft, linked as the draft, would expand enforcement tools aimed at decentralized finance frontends and payment flows.
Alex Thorn of Galaxy Digital argued the measures could mark a large expansion in surveillance powers. He wrote that the bill could "represent the single largest expansion to financial surveillance authorities since the USA PATRIOT Act," linking that comparison to the original post-9/11 legislative package.
The draft would broaden “special measure” authority for digital assets and create a statutory framework for temporary transaction holds. The proposal describes a formal "temporary hold" authority, coupled with a liability shield, and the note says "This is a transaction-interruption lever designed to allow for streamlining of law enforcement requests along with a liability shield…"
The bill also uses language to define a software layer on blockchains. It "explicitly creates the concept of a ‘distributed ledger application layer,’" and would require Treasury to clarify sanctions and AML responsibilities for frontends operating in the U.S.
Industry voices warn the draft leaves trade-offs unresolved between privacy and compliance. Rob Viglione of Horizen Labs said enterprises need confidentiality while regulators need auditability, and he criticized rules that treat infrastructure as a monitoring tool. Megan Knab of Franklin noted stablecoins are now treated as money federally, yet "at least eight U.S. states continue to prohibit their use in wage payment," and said those contradictions keep on-chain business use difficult.
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