Crypto industry advocacy bodies have slammed a newly proposed United States Senate bill for what they say is a confused approach to regulating the decentralized finance (DeFi) sector.
On July 20, crypto think tank Coin Center and crypto advocacy group the Blockchain Association released separate statements describing the legislation as a “messy,” “unworkable,” and “unconstitutional” way of regulating DeFi.
Introduced on July 18, the bipartisan Crypto-Asset National Security Enhancement Act (CANSEE) bill aims to reign in money laundering violations in DeFi.
If passed, the legislation would extend new penalties to anyone who “controls” or “makes available an application designed to facilitate transactions using a digital asset protocol.” They would also be required to adhere to anti-money laundering and financial reporting standards.
The definition of who or what “controls” a DeFi protocol was left to be made by the U.S. Secretary of the Treasury — a move some pundits say will lead to excessive controls being applied to DeFi.
In its July 20 blog post, Coin Center wrote the bill gives “virtually unbounded discretion to the Secretary to decide what it would take to designate one as having ‘control’ of a protocol.”
Additionally, the think tank declared the bill to be unconstitutional as it would crack down on software developers who — as an extension of free speech — have a First Amendment right to publish code.
We’ve looked at the new bill by @SenJackReed, @SenatorRounds, @SenatorWarner,
and @SenatorRomney that would extend sanctions penalties and AML obligations to developers of decentralized protocols. It’s unconstitutional and ill-considered. Our analysis: https://t.co/TR2rsAAQHK
— Jerry Brito (@jerrybrito) July 20, 2023
Coin Center was also concerned with the scope of the legislation and said by design DeFi is decentralized — meaning it could prove legally troublesome to enforce control over a given protocol.
Kristin Smith, the CEO of the Blockchain Association echoed Coin Center’s concerns and described the new legislation as unworkable.
Blockchain Association CEO @KMSmithDC released the following statement following today’s introduction of the Crypto-Asset National Security Enhancement Act of 2023:
“The Crypto-Asset National Security Enhancement Act of 2023, introduced today by Sen. Jack Reed (D-RI), is an… pic.twitter.com/S65XSUheTW
— Blockchain Association (@BlockchainAssn) July 19, 2023
Smith took aim at the bill for overstating the presence of money laundering in DeFi and crypto more broadly.
“At present, illicit transactions represent a small fraction of total volume: only 0.24% of all digital asset transactions in 2022, far less than in traditional finance.”
Smith said federal law enforcement agencies are already equipped with the tools and expertise to combat this “relatively small but important issue.” Ultimately, Smith denounced the new punitive measures in the bill as redundant.
While crypto organizations have taken aim at the broad scope of the bill, an April 7 U.S. Treasury report found many DeFi protocols are more centralized than claimed, often featuring a high concentration of funds and voting power in the hands of a few token holders.