Coin Center and Blockchain Association Call US Senate DeFi Bill ‘Impractical’

Crypto industry advocacy bodies have criticized the newly proposed United States Senate bill because of 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 Blockchain Association issued separate statements calling the law a “messy,” “impractical” and “unconstitutional” way of regulating DeFi.

Introduced on July 18, the bipartisan Crypto-Asset National Security Enhancement Act (CANSEE) bill aims to rein 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 digital asset protocols. They also have to comply with anti-money laundering and financial reporting standards.

The definition of who or what “controls” DeFi protocols was abandoned by the US Treasury Secretary – a move some pundits say will impose excessive controls on DeFi.

In his July 20 blog PostThe Coin Center wrote that the bill “gives the secretary virtually unlimited discretion to decide what would have to happen to designate someone as ‘controlling’ the protocol.”

Additionally, the think tank declared the bill unconstitutional because it would crack down on software developers, who – as an extension of free speech – have a First Amendment right to publish code.

we have seen the new bill @SenJackReed, @SenatorRounds, @senatorwarner,
And @senatorromney Which will extend ban penalties and AML obligations to developers of decentralized protocols. It is unconstitutional and non-negotiable. Our Analysis: https://t.co/TR2rsAAQHK

— Jerry Brito (@jerrybrito) 20 July 2023

Coin Center was also concerned about the scope of the law, saying that DeFi is decentralized by design – meaning that enforcing control over a given protocol could prove legally troublesome.

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Kristin Smith, CEO of the Blockchain Association, reiterated Coin Center’s concerns, calling the new legislation impractical.

CEO of the Blockchain Association @KMSmithDC released the following statement today following the introduction of the Crypto-Asset National Security Enhancement Act of 2023:

“The Crypto-Asset National Security Enhancement Act of 2023, introduced today by Senator Jack Reed (D-RI), is a… pic.twitter.com/S65XSUheTW

– Blockchain Association (@BlockchanAssn) 19 July 2023

Smith took aim at the bill for exaggerating the presence of money laundering in DeFi and crypto more broadly.

“Currently, illicit transactions represent a tiny fraction of the 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 deal with this “relatively small but important issue.” Ultimately, Smith called the new punitive measures in the bill redundant.

While crypto organizations target the bill’s broad scope, the April 7 US Treasury reports Many DeFi protocols were found to be more centralized than claimed, often with a high concentration of wealth and voting power in the hands of a few token holders.

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