@Mitchell @ChloeWhiteAus @JoeyNB_COS
This is just a heads-up, but I hope it helps inform the discussion going forward.
The U.S. Senate discussion draft of the CLARITY Act released on January 12 explicitly encourages digital asset exchanges and brokers (digital asset intermediaries) to use “distributed ledger analytics” to identify illicit finance. It also requires intermediaries to maintain robust capabilities to detect market manipulation, fraud, money laundering, and sanctions evasion, including through the use of distributed ledger analytics and other alternative tools.
Requiring a baseline set of tools would impose compliance costs on all digital asset intermediaries. That burden could be especially heavy for small and mid-sized firms, and could end up functioning as a regulatory moat that protects larger incumbents.
Meanwhile, at the SEC’s roundtable last December, there was also discussion of privacy technologies in crypto-asset transactions. During the Q&A, speakers suggested that wider adoption of privacy tools could negatively affect the business model of on-chain analytics providers. (It may be useful to have an LLM summarize the discussion.)
I think these interactions and dynamics between the business models of crypto-asset firms and blockchain analytics providers, and more broadly the industry structure of the crypto sector after regulatory frameworks are put in place and updated, are important factors to keep in mind in future IKP WG and FASE WG discussions, including Block 14.