The bipartisan legislation introduced earlier this week – titled the Crypto-Asset National Security Enhancement (CANSEE) Act – that seeks to regulate the decentralized finance (DeFi) sector has caused quite a stir. Cypto advocacy groups are voicing objection to the bill arguing that such an approach would stifle innovation in the United States.
Coin Center, for one, lashed out at the bill and called it a messy, arbitrary, and unconstitutional approach to DeFi.
CANSEE: A ‘Violation’ of First Amendment
The bipartisan Crypto-Asset National Security Enhancement Act (CANSEE) bill aims to tackle money laundering violations in DeFi, but legal experts remain skeptical. In a blog post, the crypto think tank’s CEO Jerry Brito slammed the bill introduced by Senators Reed, Rounds, Warner, and Romney, saying it “comes as a surprise” for lack of inputs from industry stakeholders.
‘While we appreciate the Senators’ desire to combat the abuse of crypto protocols by criminal and enemy actors, the bill unfortunately also would make the development of such protocols in the U.S. and by U.S. persons unfeasible. Worse, the bill would be unconstitutional legislation as it would clearly violate the First Amendment.”
Brito explained that if the legislation is passed, it would extend the penalties to anyone who “makes available an application designed to facilitate transactions using a digital asset protocol” as well as to those who “control a digital asset protocol,” a factor that will be solely determined by the Secretary of the Treasury.
Coin Center said that the bill gives “virtually unbounded discretion” to the Secretary.
Deeming it “unconstitutional,” Brito said that CANSEE could potentially impose crackdowns on developers, thereby leaving them vulnerable to “prosecution for merely publishing software” which is a violation of the First Amendment right to publish code.
Decentralized in Name Only
Even though the core idea behind DeFi is a “decentralized infrastructure” with no central authority, not all protocols are as decentralized as they claim. To that extent, the Coin Center admitted that it understands the Senators’ approach to prosecute entities who facilitate money laundering and sanctions evasion by providing services that are “decentralized in name only.”
However, a blanket ban on the publication of open-source code for decentralized crypto protocols and enabling the Secretary to have sole discretion to give permits to centralized protocols that may as well be traditional financial institutions “is to cede the field of innovation to the rest of the world” the advocacy group said.
