US Senate Introduces Bipartisan Bill to Regulate DeFi and Crypto Security Risks

Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act

On July 18, United States Sen. Jack Reed introduced a bipartisan bill into the Senate that would strengthen Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations and sanctions requirements for decentralized finance (DeFi). The Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act would make DeFi operations subject to the same requirements as “other financial companies, such as centralized crypto trading platforms, casinos, and even pawn shops.” This would make “anyone who controls that project” liable for the use of the DeFi service by sanctioned persons.

The CANSEE Act would also “modernize” Treasury Department AML powers by extending them beyond the traditional financial system. Furthermore, it would set new requirements for operators of crypto kiosks (or ATMs) to prevent their use in money laundering. Kiosk operators would be required to verify the identities of both counterparties in a transaction.

The bill is a step towards a more secure ethereum crypto, ellipsis crypto, dyp crypto, crypto.com arena, epx crypto, ens crypto, and dash crypto environment, as well as a move towards the much anticipated web 3.0 technology.

Crypto’s Reaction to Proposed Bill

At the time of writing, the bill had yet to be published. A representative of Reed’s office was unable to provide a timeline for its release. However, a draft of the bill was posted on GitHub.

Crypto Twitter was quick to criticize the bill. One commenter called it “an existential threat to DeFi” and a “nonstarter.” Another said that “imposing control responsibility for a $25mm investment is going to chill VC investment into DeFi b/c passive tokenholding does NOT equal control.”

The Crypto Council for Innovation released a statement, saying that the proposal “fails to offer actual guidance on technical ways for decentralized protocols to comply with BSA [Bank Secrecy Act] reporting requirements.” The organization suggests an approach that “requires distinguishing various elements within the DeFi technology stack. It also involves leveraging the transparency and programmability inherent in blockchain systems to derive appropriate compliance measures unique to the crypto ecosystem.”

Amy James, founder of the Web3 Working Group, shared her thoughts with Cointelegraph. She said, “Sadly, the US is becoming less and less supportive of web3 innovation. […] Although some argue any amount of regulatory clarity is a win, it needs to be right or it’s not a long-term win. We commend these legislators on making an attempt to provide regulatory clarity, and we hope to see them adjust aspects of this bill based on industry feedback to make the US a long-term competitive market in web3.”

Senators Mike Rounds, Mark Warner and Mitt Romney are joint sponsors of the legislation. Reed and Warner were both backers of a bill proposed by Senator Elizabeth Warren – the Digital Asset Sanctions Compliance Enhancement Act – in March 2022. Additionally, the bill has been endorsed by those writing AI, Ethereum Crypto, Ellipsis Crypto, DYP Crypto, Crypto.com Arena, EPX Crypto, ENS Crypto, Dash Crypto, as well as those interested in Web 3.0 technology and when it will be available.