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The proposed Crypto-Asset National Security Enhancement Act (CANSEE), introduced in the US Senate on July 18, has drawn strong opposition from crypto industry advocacy bodies. Critics argue that the legislation adopts a confused and unworkable approach to regulating the decentralized finance (DeFi) sector.
In separate statements released on July 20, the crypto think tank Coin Center and the Blockchain Association expressed concerns about the bill, describing it as “messy,” “unworkable,” and potentially “unconstitutional” in its current form.
The primary objective of the CANSEE bill is to address money laundering violations within the DeFi space. If enacted, the legislation would impose new penalties on individuals who “control” or provide applications designed for transactions using a digital asset protocol. These individuals would also be subject to anti-money laundering (AML) and financial reporting standards.
A key point of contention among critics is the bill’s ambiguous definition of who or what constitutes “control” over a DeFi protocol. The authority to make this determination rests with the US Secretary of the Treasury, raising concerns that this could lead to excessive and arbitrary controls being imposed on DeFi platforms.
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In a blog post published on July 20, Coin Center noted that the bill grants the Secretary virtually unrestricted discretion in deciding what qualifies as “control” over a protocol. This broad discretion raises constitutional questions, particularly regarding potential infringements on the First Amendment rights of software developers to publish code freely.
The scope of the legislation also faced scrutiny, with critics arguing that DeFi is decentralized by design, making it difficult to enforce control over individual protocols. Coin Center highlighted the complexities of regulating a decentralized system, emphasizing that imposing strict controls could prove legally problematic.
Kristin Smith, CEO of the Blockchain Association, 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, a figure significantly lower than those in traditional finance. She suggested that existing federal law enforcement agencies already possess the necessary tools and expertise to address this relatively small issue effectively, rendering the new punitive measures in the bill redundant.
While crypto organizations contest the bill’s broad scope, an April 7 US 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, crypto industry advocates are urging 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.
