Galaxy Research has issued a strong warning regarding certain Decentralized Finance (DeFi) provisions within proposed U.S. crypto legislation, arguing that the language mirrors the controversial, expansive surveillance powers granted by the Patriot Act. The analysis focuses on legislative efforts that seek to define and regulate digital asset market structure and stablecoins, specifically where the definition of a ‘financial institution’ or ‘covered person’ is overly broad.
According to Galaxy’s report, ambiguity in these bills risks categorizing non-custodial actors—such as software developers, blockchain validators, and even operators of decentralized autonomous organizations (DAOs)—as mandatory reporters. This categorization would effectively mandate compliance with stringent Bank Secrecy Act (BSA) obligations, including extensive Know Your Customer (KYC) requirements, transaction monitoring, and Suspicious Activity Report (SAR) filings, even when those actors have no direct control over user funds.
Galaxy argues the analogy to the Patriot Act is apt because the provisions grant regulators potentially unchecked authority to monitor and interfere with peer-to-peer financial activity, surpassing the technological capabilities and fundamental design of decentralized networks. The firm contends that imposing traditional surveillance infrastructure on unhosted wallets and non-custodial protocols is technically infeasible and would severely undermine financial privacy, potentially driving innovation and decentralized activity entirely offshore to avoid what the report labels as regulatory overreach.
Source: Galaxy Compares DeFi Provisions in Crypto Bill to Patriot Act Surveillance
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