SEC hunts for a smart contract analysis tool to strengthen its enforcement

With DeFi becoming more popular, the SEC wants to monitor the rapidly growing industry

The Securities and Exchange Commission (SEC) recently published a document calling for a, “smart contract analysis tool”. The tool would effectively give the SEC full access to all information related to the blockchain — which may or may not be possible to build due to the nature of decentralised ledger technology.

The requirement for the tool specifies that it must have the ability to, “analyze smart contracts in blockchains and other distributed ledgers, including contract support documentation within source code files”.

It also must provide information about the purpose of the ledger, its purchase, sales restrictions, crypto sales specification and both white and blacklisted addresses.

Other features include the ability “to identify contract modifications performed via an admin key” and could also “identify smart contract calls”.

The program must also have reporting features for the requirements listed above, and needs to be able to let SEC members access it locally at either headquarters or remote locations.

A large toolbox

As the crypto industry grows in popularity and technical advancements, the need for effective regulations grows in tandem.

Recently, the SEC procured a product from CipherTrace, which is described as a, “blockchain forensics, and risk intelligence tool,” that could trace all crypto that Binance support on its network, including Binance coin.

Last month, the Pentagon was also pursuing a similar project that would monitor blockchain systems. It was soliciting a blockchain tracing tool from prominent firms that were showing signs of interest in the crypto industry, such as Coinbase and Chainalysis.

One of the design protocols for many decentralized blockchains is secrecy, which could become a problem for regulators. If Ethereum based smart contracts become vulnerable to government interference, it is likely that privacy conscious users will create alternatives.

Putting the tools to use

The latest smart contract analysis tool might pose both a threat and a benefit to the DeFi industry. The heavy use of smart contracts in DeFi creates a challenge for the US Government – as it wants to watch and possibly intrude upon personal transactions.

One big question is whether or not the tools that various parts of the US Government are looking to acquire are even possible to create. While the SEC and Pentagon may want to have infinite access to smart contracts and blockchain, the reality of building the tools may prove frustrating and expensive.