The biggest financial surveillance expansion in the US in 25 years is here. How should the crypto industry respond?

The U.S. Senate Banking Committee is reviewing a draft of the Cryptocurrency Market Structure Act, which could trigger the largest expansion of financial surveillance powers since the 2001 Patriot Act. Galaxy Research’s latest report points out that this bill not only grants the Treasury Department new authority over DeFi front-ends and trading but also establishes a “temporary freeze” mechanism, raising deep concerns within the industry about privacy protection and business operations.

Key Mechanisms of the Bill

The most notable feature of this draft is its “temporary freeze” mechanism. Unlike traditional methods that require a court order to freeze assets, this mechanism allows law enforcement agencies to directly suspend digital asset transactions without judicial approval. This represents a clear expansion of regulatory authority.

Another critical aspect of the bill is providing a “statutory safe harbor” for good-faith stablecoin issuers and service providers. On the surface, this aims to simplify regulatory processes and enhance compliance auditability. However, in reality, it also means regulators gain more in-depth and direct monitoring rights over on-chain financial activities.

Comparison with Historical Policies

To understand the seriousness of this bill, two reference points are necessary:

Galaxy Digital research head Alex Thorn notes that the Senate version has stronger monitoring authorization than the House’s CLARITY Act, indicating not just a regulatory upgrade but a qualitative expansion of authority.

Impact on Different Participants

DeFi Developers and On-Chain Service Providers

The bill explicitly introduces the concept of “Distributed Ledger Application Layer,” requiring the Treasury to clarify sanctions and anti-money laundering responsibilities for front-ends operating in the U.S. This could impose compliance obligations on DeFi developers that were previously absent. Rob Viglione, CEO of Horizen Labs, states that as Ethereum ecosystem activity increases, regulators must balance auditability with expanded surveillance, or else face real risks for enterprises.

Stablecoin Issuers

While stablecoins are regarded as legal tender at the federal level, state laws and banking policies vary significantly. Megan Knab, CEO of Franklin, points out that this means on-chain payroll and business payments still face major legal and operational challenges. The “safe harbor” provided by the bill appears beneficial but implicitly entails stronger regulatory constraints.

Digital Asset Investors

The temporary freeze mechanism directly impacts investors’ asset liquidity. While intended to combat illegal financial activities, it also broadens administrative power over individual assets.

Core Trade-offs

This bill exposes a fundamental contradiction between regulatory transparency and privacy protection. Increasing auditability requires more data transparency, but this also entails broader surveillance. Industry observers generally believe that the bill favors surveillance over privacy.

Potential Future Impact

If ultimately passed, its influence will extend far beyond the U.S. borders. Due to America’s global financial influence, this bill could set a new standard for compliant operations of DeFi projects and stablecoins worldwide. Many international projects may need to reassess their U.S. operational strategies or even adjust their global compliance frameworks.

Summary

This bill signifies a shift in U.S. regulators’ attitude toward cryptocurrencies—from exploratory regulation to mandatory control. The largest expansion of financial surveillance in 25 years is not alarmist but an objective description of the bill’s scope of power. The key issue is not regulation itself but whether the speed and scope of power expansion exceed necessary limits. For the entire industry, close attention should be paid to the bill’s review progress and how the industry can find a new balance between compliance and innovation.