Proposed US Legislation Mandates Companies to Report Off-Chain Transactions to CFTC

A new legislative proposal in the United States is seeking to bring increased transparency to the world of cryptocurrency transactions. On September 28, U.S. Representative Don Beyer introduced the “Off-Chain Digital Commodity Transaction Reporting Act,” a bill designed to mandate cryptocurrency service providers to report all blockchain transactions to a government repository registered with the Commodity Futures Trading Commission (CFTC).

The primary objective of this legislation is to safeguard cryptocurrency investors from potential disputes, manipulations, or fraud arising from transactions occurring off-chain or outside the purview of the blockchain network. Unlike on-chain transactions, which are promptly recorded on the blockchain, off-chain cryptocurrency transactions operate through secondary layers, making them challenging to track and monitor.

The rise of trading platforms, coupled with the desire to enhance transaction speeds and reduce costs, has led to a surge in “off-chain” transactions. These transactions, crucially, are not publicly visible on the blockchain. Representative Beyer’s bill addresses this informational gap by compelling crypto service providers to report all off-chain transactions within a 24-hour window to a CFTC-registered trade repository. This requirement aligns with the protocols followed for a wide array of securities and swaps transactions, ensuring consistency in regulatory standards.

The motivation behind this legislation, as stated by Representative Beyer, is to introduce a common-sense measure that enhances transparency and instills confidence in the digital asset market. He emphasized the need for standardized reporting, especially since internal record-keeping practices among private entities can vary significantly, leaving investors and consumers susceptible to fraudulent activities.

This move comes amidst a broader focus by U.S. lawmakers on cryptocurrency regulations. In mid-September, nine U.S. senators expressed their support for Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act, a legislation aimed at combating the illicit use of digital money. The proposed Act includes measures to tighten regulations around noncustodial digital wallets and extends the responsibilities outlined in the Bank Secrecy Act to address the challenges posed by the evolving landscape of digital assets. The introduction of the “Off-Chain Digital Commodity Transaction Reporting Act” reflects the U.S. government’s efforts to adapt regulations to the evolving crypto landscape, ensuring investor protection and market integrity in the face of emerging financial technologies.

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