SEC Quietly Signs a Deal to Spy on Crypto DeFi Transactions

Without fanfare, the US Securities and Exchange Commission has contracted a Californian blockchain analytics firm to help monitor and regulate the DeFi industry.

The contracted firm is AnChain.AI, a San Jose-based blockchain startup that focuses on tracking illicit activity across crypto exchanges, DeFi protocols and traditional financial institutions. The initial value of the contract is US$125,000, with five one-year US$125,000 options totalling US$625,000.

Moving Away From ‘Post-Incident Investigations’ to ‘Preventive’

Apart from monitoring known crypto wallets tied to hackers and bad actors in general, AnChain.AI’s predictive engine claims to identify unknown addresses and transactions that could be suspicious. This allows the firm to warn of impending risks rather than address those after the fact, a feature that dovetails with the SEC’s interests.

The SEC is very keen on understanding what is happening in the world of smart contract-based digital assets … so we are providing them with technology to analyse and trace smart contracts.

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Victor Fang, AnChain.AI CEO and co-founder

The alliance is seen as part of a broader move towards regulating the crypto sector. SEC chairman Gary Gensler has already likened DeFi operators to “promoters” and “sponsors” who are involved in both creating and marketing their projects to the masses.

“There’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees … There’s some incentive structure for those promoters and sponsors in the middle of this,” Gensler said a month ago.

Around the same time, Gensler let slip that he viewed the crypto field as being filled with “a lot of hype masquerading as reality”, adding that “Nakamoto’s innovation is real”.

Frankly, at this time [the crypto space] is more like the Wild West.

Gary Gensler, SEC chairman

Gensler’s comments are a long way from the ethos of DeFi, whose proponents envision a wholly decentralised, multi-trillion-dollar financial ecosystem where smart contracts handle payments, loans, exchanges, tradings and other services, where no physical or identification barriers exist.