The proposed Crypto-Asset National Security Enhancement Act (CANSEE) bill introduced in the United States Senate on July 18 has faced strong opposition from crypto industry advocacy bodies, who argue that it takes a confused and unworkable approach to regulating the decentralized finance (DeFi) sector.
In separate statements on July 20, both the crypto think tank Coin Center and the crypto advocacy group, the Blockchain Association, expressed their concerns about the bill, referring to it as “messy,” “unworkable,” and even “unconstitutional” in its current form.
The main objective of the CANSEE bill is to address money laundering violations within the DeFi space. However, if passed, the legislation would extend new penalties to individuals who “control” or provide applications designed for transactions using a digital asset protocol. Such individuals would also be subject to anti-money laundering and financial reporting standards.
One of the key issues highlighted by critics is the ambiguity in the bill’s definition of who or what constitutes “control” over a DeFi protocol. The responsibility for making this determination is left to the U.S. Secretary of the Treasury, raising concerns that it may lead to excessive and arbitrary controls being imposed on DeFi platforms.
Coin Center’s blog post on July 20 pointed out that the bill grants the Secretary virtually unrestricted discretion in deciding what qualifies as “control” over a protocol. This level of discretion raises questions about its constitutionality, particularly as it could infringe upon the First Amendment rights of software developers to publish code freely.
The scope of the legislation also came under scrutiny, with critics arguing that DeFi, by design, is decentralized, making it challenging to enforce control over individual protocols. Coin Center highlighted the complexities of regulating a decentralized system, emphasizing that imposing strict controls could prove legally troublesome.
The CEO of the Blockchain Association, Kristin Smith, echoed Coin Center’s concerns and further criticized the bill for overstating the prevalence of money laundering in DeFi and the broader crypto space. According to Smith, illicit transactions accounted for only 0.24% of all digital asset transactions in 2022, significantly lower than traditional finance’s numbers. She suggested that existing federal law enforcement agencies already possess the necessary tools and expertise to address this relatively small issue effectively, making the new punitive measures in the bill redundant.
While crypto organizations contest the bill’s broad scope, an April 7 U.S. Treasury report indicated that some DeFi protocols are more centralized than claimed, with a few token holders controlling a considerable portion of funds and voting power.
As the debate continues, the crypto industry advocates urge for a more thoughtful and comprehensive approach to DeFi regulation that strikes a balance between addressing legitimate concerns and preserving the decentralized nature of these financial systems.
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