Congress must create legal clarity for decentralized blockchains

From stablecoins to tokenized deposits, banks are no longer just watching from the sidelines; they are actively exploring the next generation of financial infrastructure built on decentralized networks — blockchain-based systems operated and maintained by many independent participants rather than a single company. As a result, financial institutions now have a growing stake in the operation, governance and security of these networks.

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But this interest is running straight into a legal and compliance conundrum. The stringent regulatory frameworks that govern banks — covering operational resilience, counterparty risk, safety and soundness, and AML/sanction compliance — do not have a clear way to handle “decentralized” networks or loose coalitions of unknown individuals running and governing them.

This is where Congress has a critical role to play. New market structure legislation, such as the Digital Asset Market Structure Clarity Act, or CLARITY Act, and the Responsible Financial Innovation Act, or RFIA, can provide the certainty banks need by ensuring legal structures (like LLCs or nonprofits) can be used for the decentralized governance of these networks. This isn’t just a “crypto” issue; it’s a banking and financial infrastructure issue.

For a bank’s compliance and legal teams, engaging with a blockchain network run by unknown actors who reside in unknown jurisdictions is difficult if not impossible. They are trained to ask, “Who runs this technology? Who do we vet? Who is responsible if something goes wrong?”

Legal entities provide the two-part answer banks need. First, a legal entity provides a clear, identifiable entity for due diligence. Banks rigorously vet key software providers, but network protocols operated by a loose coalition of unknown actors make this process extremely difficult in the blockchain context. Allowing a legal entity through which a decentralized network can coordinate its governance creates a defined “who” that compliance and risk teams can vet, satisfying the rigorous AML and risk assessment procedures that are foundational to banking.

Second, as tokenized deposits and stablecoins become more prominent, banks won’t want to be just passive users of these blockchain networks — they will have a vested interest in participating in their governance. Banks will want a seat at the table to vote on standards, security upgrades, and operational rules. Without a legal entity, this is impossible. Federal courts have underscored this risk in cases like Samuels v. Lido DAO, Sarcuni v. bZx DAO, and CFTC v. Ooki DAO. These rulings suggest that participants in governance structures for network protocols that have not been formalized into legal entities could be deemed general partners, exposing them to personal, unlimited liability for the actions of the entire network. For a regulated bank, this outcome is not just a high risk; it’s an immediate deal-breaker. A legally recognized entity, like an LLC or nonprofit, provides the foundation and clarity needed to allow a bank to participate in governance — to cast a vote or contribute resources — without risking its balance sheet on the actions of other participants.

State-level efforts to address the above problems, like Wyoming’s Decentralized Unincorporated Nonprofit Association, or DUNA, Act and similar statutes in Vermont, Tennessee, and Utah, are steps in the right direction but are insufficient. They do not fully address broader federal legal uncertainties (especially around securities laws) and create a compliance patchwork that is unworkable for national and regional financial institutions.

This is precisely why the CLARITY Act and RFIA are so important. Both measures, as well as draft market structure legislation proposed by the Senate Agriculture Committee, would establish that these foundational legal entities can coexist with decentralized governance. The bills clarify that a network can operate through a legal entity so long as control is not concentrated in one person or a small group. This means that banks could both identify a legal entity that governs a key technology and also participate in the governance of that technology without the risk of exposing their balance sheets to unknown liability.

For banks, a consistent federal approach means decentralized infrastructure can be properly vetted, and regulators can provide clearer guidance. It would allow compliance teams to perform their critical functions using procedures they already rely on, reducing the risk of inconsistent enforcement or legal surprises.

As blockchain networks merge with traditional finance, legal clarity does not eliminate risk, but it makes risks measurable and manageable. By passing market structure legislation that allows legal entities to coexist with decentralization, Congress can provide the foundation for safe innovation, giving banks the confidence to engage and ensuring the next generation of financial infrastructure is built right here at home.