The US Senate's newly introduced bill, the Crypto Assets National Security Enhancement Act (CANSEE), has drawn criticism from cryptocurrency industry advocacy groups, who find its approach to regulating the decentralized finance (DeFi) space confusing. Coin Center and Blockchain Association, two prominent groups in the industry, issued separate statements on July 20, calling the legislation messy, unfeasible, and even unconstitutional.
The bipartisan bill, introduced on July 18, aims to combat money laundering violations in the DeFi sector by introducing new penalties for individuals or entities that "control" or provide applications for transactions using digital asset protocols. The US Treasury Secretary would define who falls under the category of "controls" in a DeFi protocol, raising concerns about excessive control and discretion over the DeFi space. Coin Center argued that this provision grants the Treasury Secretary almost unlimited power to determine control, p potentially affecting developers' free speech rights to release code, making it constitutionally questionable.
Furthermore, both groups expressed concerns about the feasibility of the legislation, given the decentralized nature of DeFi. They believe imposing control over specific protocols may encounter legal challenges, as DeFi is designed to be decentralized by nature. Additionally, the scope of the bill was criticized for being overly broad and potentially affecting legitimate actors in the DeFi space.
Blockchain Association CEO Kristin Smith highlighted that the bill exaggerates the issue of money laundering in DeFi and the broader cryptocurrency sector. She pointed out that illicit transactions account for only a small fraction of the total transaction volume, making up 0.24% of all digital asset transactions by 2022, a lower percentage compared to traditional finance. Smith argued that federal law enforcement agencies already possess the tools and expertise to address this relatively small problem, rendering the new penalties in the bill redundant.
While industry groups critique the bill, an April 7 report from the US Treasury Department revealed that many DeFi protocols are less decentralized than they claim to be, with a high concentration of funds and voting power often held by a small number of token holders. proposals about the potential need for regulation to address centralization issues within the DeFi space.
