In a move that has raised eyebrows, a ‘messy’ and ‘unworkable’ US Senate bill directed towards the decentralized finance (DeFi) sector has come under criticism. Crypto think tank, Coin Center, and crypto advocacy group, the Blockchain Association, have both expressed concerns about the proposed legislation, which they view as a backwards step in terms of regulating DeFi.
The bipartisan bill named Crypto-Asset National Security Enhancement Act (CANSEE), recently introduced, aims to cast a wider net to curb money laundering violations in DeFi. Its framework would impose new sanctions on anyone who “controls” or “makes available an application designed to facilitate transactions using a digital asset protocol” and would also necessitate adherence to anti-money laundering and financial reporting standards. The ambiguity around defining what constitutes ‘control’ over a DeFi protocol rests with the U.S. Secretary of the Treasury, eliciting concerns that this could lead to a regulatory stranglehold on DeFi.
Coin Center has voiced significant reservations about the legislation, suggesting the bill hands over near limitless discretion to the Secretary of Treasury to establish what indicates control over a protocol. The group perceives the bill as unconstitutional, asserting that the crackdown on software developers infringes upon their First Amendment right to publish code.
The scope of the legislation is a point of contention due to DeFi’s inherent decentralization, making it potentially arduous to enforce any kind of control over a particular protocol. Furthermore, overstating the occurrence of money laundering within DeFi and the wider crypto sector is another contested issue. Notably, Kristin Smith, the CEO of the Blockchain Association, highlighted that illicit transactions comprised a minuscule 0.24% of all digital asset transactions in 2022, a figure considerably smaller than in traditional finance.
While crypto organizations dispute the extent of the bill, a U.S. Treasury report released in April found that many DeFi protocols are more centralized than they claim, often presenting a high concentration of funds and decision-making power in the hands of a few token holders. This juxtaposition underlines the complexity and challenges involved in effectively regulating the rapidly evolving world of DeFi.
Source: Cointelegraph
