Debate over Proposed Regulation in the Crypto Space
As recent Senate legislation looks to regulate the decentralized finance (DeFi) sector, key voices in the crypto industry have raised concerns. Coin Center, a crypto-focused think tank, and the Blockchain Association, an advocacy group for the industry, have voiced their stark disapproval, labeling the bill as confused, unworkable, and even unconstitutional.
The Crypto-Asset National Security Enhancement Act (CANSEE)
Introduced on July 18, this bipartisan bill, known as the Crypto-Asset National Security Enhancement Act (CANSEE), aims to clamp down on money laundering violations within DeFi. If the law is passed, new penalties will be imposed on anyone deemed to have control over or involved in creating applications designed to facilitate transactions using a digital asset protocol. In addition, these individuals would need to comply with anti-money laundering and financial reporting standards.
Defining 'Control' in the DeFi Sector
The bill deliberatively leaves the responsibility of defining what constitutes 'control' in a DeFi protocol to the Secretary of the Treasury. Many industry insiders believe that this could result in excessive regulatory controls put in place against DeFi. Coin Center expressed worry over the broad scope of this discretion given to the Secretary in a July 20 blog post, raising apprehensions about potential overregulation.
Concerns Over Constitutional and Enforcement Issues
Beyond this, Coin Center questioned the bill's constitutionality, noting that it could infringe on the rights of software developers. These developers, it argued, have a First Amendment right to publish code. Furthermore, there was concern about the enforceability of the bill given the decentralized nature of DeFi: controlling a protocol amid such decentralization could prove legally complex.
Questioning the Practicality of the Legislation
Kristin Smith, the CEO of the Blockchain Association, also questioned the feasibility of the regulatory measures proposed in the bill. Smith took particular issue with the bill’s implication that there was a large amount of money laundering taking place in DeFi and the broader crypto ecosystem. She mentioned that federal law enforcement already has appropriate tools and expertise to target this relatively minor but crucial issue. Thus, the new punitive measures in the bill were categorized as unnecessary duplication by Smith.