Crypto industry advocacy bodies have strongly criticized a new proposed bill in the United States Senate for its confusing and unworkable approach to regulating the decentralized finance (DeFi) sector. The bill, called the Crypto-Asset National Security Enhancement Act (CANSEE), aims to address money laundering violations in DeFi. However, both Coin Center and the Blockchain Association have raised concerns about the legislation.
If passed, the CANSEE bill would impose penalties on those who “control” or provide an application designed to facilitate transactions using a digital asset protocol in DeFi. These individuals would also be required to comply with anti-money laundering and financial reporting standards. However, there is ambiguity surrounding the definition of who or what “controls” a DeFi protocol, as this would be determined by the U.S. Secretary of the Treasury, potentially leading to excessive control being applied to DeFi.
Coin Center, in a blog post on July 20, expressed its discontent with the bill, stating that it grants the Secretary of the Treasury extensive discretion to determine what constitutes “control” over a protocol. They also argued that the bill violates the developers’ First Amendment right to publish code, as cracking down on software developers would impede their freedom of speech.
Another concern raised by Coin Center is the legislation’s scope and its applicability to the decentralized nature of DeFi. By design, DeFi is decentralized, making it challenging to enforce control over protocols. The Blockchain Association CEO, Kristin Smith, echoed these concerns, describing the bill as unworkable. She also highlighted that money laundering represents a small fraction of total digital asset transactions, making the bill’s punitive measures redundant.
Related Post
While crypto organizations question the broad scope of the bill, a U.S. Treasury report published on April 7 found that many DeFi protocols are more centralized than claimed. The report highlighted that these protocols often have a high concentration of funds and voting power in the hands of a few token holders. This finding indicates that there may be a need for regulatory oversight in the DeFi space, but the CANSEE bill’s approach is seen as inadequate and problematic by industry advocates.
Overall, the proposed legislation has faced significant criticism from crypto industry advocacy bodies, who argue that it is messy, unworkable, and unconstitutional. The bill’s lack of clarity surrounding the definition of control and its potential infringement on developers’ freedom of speech are major concerns. Additionally, the bill’s punitive measures are seen as unnecessary given the small proportion of money laundering transactions in the crypto space. While regulatory oversight of DeFi may be necessary, the current approach needs to be reevaluated to ensure it is both effective and fair.
