A group of Senators from both parties presented a bill mandating DeFi (what’s that) platforms to adhere to the same regulatory requirements as traditional financial firms like banks and centralized exchanges. Named the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act, the new legislation would mandate decentralized finance services and protocols to adhere to anti-money laundering (AML) rules and US economic sanctions.
Sponsors of the new Crypto-Asset National Security Enhancement Act of 2023 highlight DeFi and crypto ATMs as vectors for financial crime. The legislation aims to crack down on the illicit activities of criminals, drug traffickers, and state actors like North Korea, who have exploited decentralized finance for their nefarious purposes.
Anyone in control of a DeFi project will face penalties if they enable a sanctioned individual to bypass US sanctions through their platform.
“If nobody controls a DeFi protocol, then – as a backstop – anyone who invests more than $25 million in developing the protocol will be responsible for these obligations,” the briefing document states.
These controversially defined “controlling entities” would be required to verify and gather customer information, implement anti-money laundering programs, report suspicious activities to the government, and prevent sanctioned individuals from accessing their protocol.
The bill would place identity verification requirements on crypto ATMs, where people can purchase crypto using cash or debit cards at kiosks.
“Unfortunately, this bill goes the opposite direction. It places legal obligations arbitrarily on persons who have no actual way to influence protocols once they are deployed, and completely fails to account for the unique attributes of blockchain-backed systems,” stated Crypto Council for Innovation in their tweets thread.
While it is important to deter illicit finance activity, including in the DeFi ecosystem, this proposal lacks a practical approach to achieving that goal.
So there is more potential crypto regulation in the US, but again, where’s the clarity? Because without that clarity, the evidence looks and feels like The SEC is simply seeking to ban DeFi protocols in America.