Freezing Funds and Special Powers
Recent developments related to the ongoing Trucker protest and occupation in Ottawa have led the Canadian federal government to take stark action. Let’s consider what this means from a DeFi-centric perspective.
The Prime Minister of Canada, Justin Trudeau, announced on Monday that his government would put into force the Emergencies Act, the legal predecessor to the old War Measures Act. The move gives the federal government sweeping and greatly expanded powers with little oversight. At the same time, the government announced their decision to expand FINTRAC reporting requirements as part of their measures to attack the funds used by the Trucker Convoy.
Regardless of how you personally feel about the ongoing protest (and evidence suggests broad public sentiment has turned against this particular group), the government’s decision to use their powers to debank protestors and their supporters, rather than arrest them and charge them with a criminal offense is concerning.
Do Kwon took to Twitter to make clear the potential DeFi products and platforms have for governments who would seek to censor financial transactions:
To be clear, governments freezing funds and censoring financial transactions related to support for potentially unlawful - but still peaceful protests, highlights the potential of not just assets like Bitcoin, but also emerging DeFi assets like $UST and other truly decentralized projects. Centralized stablecoins like Tether and USDC are much more at the mercy of regulators than their truly decentralized counterparts. If push comes to shove, however, the issue becomes one of decentralization theater. If a project is decentralized via a certain number of players holding multisig and authorities can identify those involved, is it actually decentralized? In the coming months and years, governments will look to test claims such as those made by Do Kwon above. While $UST may not be frozen, thumbing your nose at government and regulators rarely works out well.
While its clear that users of crypto can attempt to evade reporting requirements, the overwhelming majority of investors will continue to report transactions accurately, pay their taxes owed, and remain in compliance with laws applicable in their jurisdiction. Despite the fact that there remains a bit of a wild west atmosphere to DeFi and crypto more broadly, the era of lawlessness in crypto is long past. Investors want clear guidance from regulators, ultimately to shield themselves from risk and remain in the bounds of the law. Most folks want to pay their taxes and be honest with the government. Protestors using crypto to defy government orders - even if they are heavy handed and potentially unlawful - will only further the divide between traditional finance and our still nascent space.
The world of DeFi is almost certainly going to be tested and projects that aren’t truly decentralized are vulnerable. Governments will do whatever they can to maintain their ability to impose meaningful regulations, and choking off financial access to individuals and groups is clearly seen as an important tool in their toolbox. If voters are aggrieved about this (especially those in Canada) they should remember this when they go to the ballot box.
