The Senate introduced the Crypto-Asset National Security Enhancement and Enforcement Act (CANSEE) in a bold move to tackle illicit financial activities within the rapidly expanding world of decentralized finance (DeFi). However, the bill is facing intense criticism from leading crypto advocacy groups, who argue that it threatens to stifle innovation, infringe on individual rights, and undermines the very essence of decentralization.
Democratic senators Jack Reed and Mark Warner unveiled a new measure on July 19 that intends to stop money laundering and terrorism financing in the decentralized finance (DeFi) sector. The law mandates that any violations or unauthorized DeFi protocol transactions must be penalised in order to deter future behavior. However, the bill seeks to hold the person in charge of the network accountable for any violations since DeFi users’ intrinsic anonymity. According to the proposed regulation, persons who have extensively invested in a DeFi platform are responsible if there is no obvious controller or owner. Venture capital firms and other illustrious investors who have contributed more than $25 million to the platform would fall into this category.
CoinCenter, a prominent crypto advocacy group, minced no words in expressing its disapproval of the proposed legislation. According to CoinCenter’s executive director Jerry Brito, the bill is “messy, arbitrary, and unconstitutional.” The group’s main concern revolves around the extension of sanctions penalties and Bank Secrecy Act (BSA) obligations to individual developers, effectively holding them responsible for the illegal uses of their platforms.
Moreover, the bill hands unwarranted authority to the Secretary of the Treasury, giving them the power to decide who controls any given DeFi protocol. This uncertainty has raised fears that even the act of publishing code in books could potentially be subject to enforcement action.
Brito acknowledged the government’s intentions to combat money laundering but lambasted the bill as a “blanket ban” that restricts free speech, which could have broader implications for the industry.
The Blockchain Association, another influential advocacy group, echoed these concerns in its response to the CANSEE bill. The group’s CEO, Kristin Smith, pointed out that illegal transactions represented a mere 0.24% of all crypto transactions in 2022. With existing regulatory powers, authorities already possess adequate tools to enforce the law. The Blockchain Association deemed the proposed bill as “unworkable” and fundamentally incompatible with the nature of digital assets.
Natalie Smolenski, senior fellow for the BTC Policy Institute, went even further, claiming that the bill’s intention is to “outlaw decentralization.” This sentiment highlights the fear within the crypto community that the bill seeks to undermine the core principle of DeFi, which relies on a decentralized structure.
The DeFi Education Fund (DEF) expressed its support for measures to combat illicit activities within the industry but rejected the CANSEE bill’s approach. DEF believes that the bill essentially forces DeFi platforms to centralize operations, shut down, or exit the United States altogether, stifling innovation and potentially driving innovation overseas.
The CANSEE bill, introduced by bipartisan support, aims to hold DeFi platform operators and major stakeholders accountable for illegal activities on their platforms. This includes those involved in money laundering and terrorism financing. However, the bill’s content-based approach has raised serious concerns about its potential impact on free speech and technological advancement.
While the intentions of the bill may be well-meaning, its overly broad scope and lack of specificity have drawn significant backlash from the crypto community and advocacy groups. Critics argue that there are more effective and less intrusive ways to combat illicit financial activities within DeFi without sacrificing innovation and decentralized principles.
As the debate surrounding the CANSEE bill intensifies, its potential impact on the DeFi sector in the USA remains uncertain. While regulatory measures are essential to maintain market integrity, striking a balance between oversight and fostering innovation will be crucial to ensure the continued growth and success of the crypto industry. The Senate will need to carefully consider the concerns raised by advocacy groups and the broader crypto community before proceeding with the legislation.