On January 14, 2026, in Washington, D.C., during a hearing of the Senate Banking Committee, a draft bill regarding the structure of the cryptocurrency market was officially presented. Compared to previous debates surrounding token attributes and registration obligations, this time the focus is more aligned with national security and financial sovereignty, as it has the potential to reshape the regulatory landscape of the entire cryptocurrency sector in the United States. Galaxy Research warned in its assessment report that this draft could constitute "the largest single expansion of U.S. financial surveillance powers since the 2001 Patriot Act." Although this statement still requires further verification, it is sufficient to highlight the gravity and risk tension of the event. Discussions surrounding the draft quickly centered on a core conflict: the Treasury's attempt to gain greater discretion in financial surveillance and anti-money laundering, while the cryptocurrency industry, rooted in decentralized architecture and a culture of anonymity, remains highly vigilant against expansive monitoring. The ultimate question of this collision is whether, if this set of rules is ultimately passed, the U.S. and global cryptocurrency markets will be pushed into a new "surveillance order" based on on-chain visibility and centered around administrative discretion.

Expansion of Special Measures and On-Chain Freezing

In the traditional financial system, "special measures" typically refer to a set of powers that the Treasury and its financial intelligence agencies can activate in response to significant money laundering and terrorist financing threats. After the passage of the 2001 Patriot Act, such measures were widely applied to bank accounts, cross-border remittances, and suspicious transaction monitoring, emphasizing precise restrictions on individuals or specific institutions within a compliance framework. The draft bill under review by the Senate Banking Committee extends this concept to the digital asset space, attempting to transplant tools originally focused on accounts and banks into exchanges, custodians, and the broader flow of on-chain assets.

One of the most concerning proposals in the draft is to authorize the Treasury to implement temporary freezes on specific digital asset transactions without prior court orders. For centralized exchanges and custodians that rely on compliance as their survival foundation, this means that regulators can directly "hit the pause button" on asset flows, thereby bypassing the time lag inherent in traditional litigation processes. Regulation is shifting from a focus on filing, investigation, and post-event tracking to proactively intercepting assets before they complete on-chain migration under the guise of special measures. The head of research at Galaxy Digital pointed out that this power transition signifies that the Treasury's management of crypto assets will upgrade from "patchwork" interventions at marginal risk points to "control valve" management of the entire on-chain financial hub.

Once the freezing authority is amplified in speed and scope, the logic of regulatory games will also change. Authorities can initiate freezes while intelligence is still ambiguous to prevent rapid cross-chain fund movement, which indeed has practical appeal for combating cross-border crime and on-chain money laundering. However, concerns in the market are rising: will misjudgments under information asymmetry lead to normal transactions being "mistakenly killed," will technical or address identification errors result in innocent users' assets being locked for extended periods, and whether, in the absence of effective judicial review, special measures could evolve into widely applicable administrative tools rather than exceptional means in extreme situations.

DeFi Front Ends Brought Under Regulatory Scrutiny

For a long time, the core smart contracts of DeFi protocols have often been viewed as "neutral code," allowing their deployers and operators to maintain a technical distance from specific user behaviors, thus existing in a regulatory gray area. The protocol layer is responsible for executing fund matching, collateralization, and settlement on-chain, while the front-end interface handles user interaction, data display, and access functions, creating a certain degree of separation in both technical and legal roles. Past enforcement has focused more on centralized platforms and token issuers, while the positioning of DeFi front ends has always been ambiguous.

The directional adjustment of this draft bill attempts to clearly assign a regulatory subject identity to DeFi front ends. According to public information, the draft proposes to impose sanctions and anti-money laundering obligations on front ends that provide access to on-chain protocol interfaces, likening them within the compliance framework to "gatekeepers" that must fulfill customer identification and transaction monitoring responsibilities. For interface operators who previously relied on open-source, non-custodial structures to dilute responsibility recognition, this means a dividing line is being redrawn: as long as the level of control over the front end and the profit distribution structure reach a certain threshold, it will be difficult to continue to claim the status of a "pure technology provider."

Under this new framework, front-end developers, interface operation teams, and liquidity providers that offer depth and liquidity to the protocol may face more direct compliance pressures and legal risks. Delisting specific trading pairs, implementing geographic restrictions for U.S. users, and integrating KYC and transaction monitoring modules at the entry level may all become realistic options. Some project teams may be forced to relocate their operating entities to jurisdictions with looser regulations or dilute responsibility through multi-layer shell companies and DAO governance structures, leading to an increasingly intense "structural design battle" between compliance and non-compliance within the tech stack.

If regulatory enforcement on DeFi front ends continues to strengthen in the future, an extreme but not unimaginable industry response path is for the front ends themselves to become further decentralized. Community-maintained open-source interfaces, users self-hosting and deploying front-end code, or even directly interacting with contracts through command lines or wallet plugins may all become migration directions to bypass specific judicial jurisdiction regulations. The separation of protocols and front ends will no longer be merely an architectural optimization but will evolve into a structural choice under the tug-of-war between compliance and anti-censorship forces, with ordinary users facing sharper trade-offs between usability and privacy protection.

Historical Echoes of the Patriot Act and On-Chain Addresses

To understand the emotional tension surrounding the current cryptocurrency market structure bill, the 2001 Patriot Act is an unavoidable historical reference point. Against the backdrop of the war on terror, the U.S. significantly expanded its financial surveillance and intelligence-gathering powers through this act, bringing bank accounts, cross-border remittances, and suspicious activity reporting systems under more intensive scrutiny. These measures were viewed by supporters as necessary tools to combat terrorist financing and transnational crime, but they also sparked ongoing debates about citizens' privacy rights and the boundaries of government power, which have not fully subsided even more than twenty years later.

Compared to the traditional financial architecture based on real-name accounts and centralized clearing systems, the world of crypto assets is based on addresses, contracts, and decentralized protocols. Once the same set of surveillance ideas is fully transplanted into the on-chain environment, its penetration may even be stronger: on-chain data is inherently public and transparent, allowing fund flows, interconnections, and behavioral patterns to be highly visualized and quantified by technical tools. Finding a balance between this "panoramic surveillance potential" and individual privacy protection is far more complex than in the traditional banking system and is more likely to provoke controversy.

Galaxy Research describes this draft as "potentially the largest single expansion of U.S. financial surveillance powers since the 2001 Patriot Act." This assessment is currently marked as a viewpoint pending verification, but its symbolic significance cannot be ignored. It places the current legislative struggle directly within the historical narrative of "surveillance expansion in the era of anti-terrorism," prompting the market and the public to quickly associate emotionally with past political debates surrounding large-scale signal collection, data retention, and cross-border information sharing. Meanwhile, the U.S. Securities and Exchange Commission has been continuously ramping up its enforcement against the cryptocurrency industry, from determining securities attributes to managing exchange licenses, and lawsuits against specific projects, creating an increasingly tight encirclement in the dimensions of securities law, trading rules, and anti-money laundering systems. The special measures and surveillance authority expansion involved in this cryptocurrency market structure bill is another key piece emerging against this broader backdrop of tightening compliance.

Global Echoes of U.S. Surveillance

The U.S. has long played a pivotal role in the global financial system, with the dollar clearing network, cross-border banking operations, and the actual operating environment of major stablecoin issuers all significantly influenced by its regulatory choices. This means that once local cryptocurrency regulation significantly advances in surveillance and freezing authority, its impact will not be limited to U.S. users but will spill over into the global cryptocurrency market along the links of exchanges, custodians, payment channels, and compliance service providers. For stablecoin issuers holding large dollar reserves, once they are included in a more stringent toolbox of special measures, they will have to recalibrate their risk preferences between serving global users and meeting U.S. regulatory requirements.

Given the highly cross-border flow and borderless nature of the cryptocurrency market itself, funds may also find new migration paths. Some trading volumes that rely on U.S. compliance infrastructure may shift to regions with greater regulatory arbitrage opportunities after tightening regulations, or directly flow into decentralized scenarios that do not hold user assets and are harder to influence by a single judicial jurisdiction. For global DeFi users, U.S. residents may face more interface blocks, higher KYC thresholds, or even the risk of specific assets being frozen in the future, while non-U.S. users, although not directly bound by U.S. domestic laws, will still have to contend with uncertainties brought about by long-arm jurisdiction—especially on platforms with business ties to the U.S. banking system or dollar clearing.

If this bill ultimately becomes a de facto regulatory template, its demonstration effect is likely to extend beyond U.S. borders. Other jurisdictions, when weighing the need to combat on-chain crime against protecting citizens' privacy, may choose to replicate parts of the special measures design in their local versions or adopt modified KYC and data retention requirements. The design boundaries of global cryptocurrency infrastructure—including node distribution, data hosting locations, front-end architecture, and privacy layer technology selection—may all be redrawn under the pressure of this "surveillance paradigm output." The narrative that the cryptocurrency industry has previously prided itself on—of technological neutrality and borderlessness—will have to confront a more realistic question: when sovereign nations converge on on-chain surveillance and judicial cooperation, how much of the regulatory tide can so-called "offshore" and "decentralization" truly evade?

Industry Choices Amid Legislative Tug-of-War

It is important to emphasize that this cryptocurrency market structure bill is still in the review stage by the Senate Banking Committee, and the refinement, revision, and negotiation of relevant provisions are still ongoing, with the specific voting timetable yet to be disclosed. At this moment, what we see is more like a possible path rehearsal rather than a set-in-stone final rule. This article has overviewed several key threads surrounding this draft: the expansion of the Treasury's special measures in the digital asset space, the formal inclusion of DeFi front ends under regulatory scrutiny, the historical echoes of the 2001 Patriot Act, and the spillover effects of U.S. surveillance tools through the global financial network, all pointing to the emergence of a new regulatory paradigm characterized by "surveillance priority."

In the face of this trend, the cryptocurrency industry may find it increasingly difficult to rely on a single confrontational approach in the medium to long term, necessitating more nuanced structural and strategic adjustments. On one hand, compliance frameworks may need to be advanced, reserving space for regulatory communication and rule alignment from the project initiation and protocol design stages, seeking a higher-dimensional balance between compliance and anti-censorship through means such as protocol and front-end separation, decentralization of permissions, and risk isolation. On the other hand, privacy technologies and compliance technologies will also be forced to develop in parallel: tools like zero-knowledge proofs and multi-party secure computation may retain a certain degree of privacy buffer for users while meeting regulatory compliance; meanwhile, on-chain analysis, identity bridging, and compliance middleware companies will play increasingly important roles in the new environment.

Ultimately, the extent to which this surveillance power expansion can be implemented will still depend on several key variables: the final details of the legislative text, the courts' positions in constitutional disputes and power boundary cases, and the scale and choices of the White House and various regulatory agencies in actual enforcement. The interactions among these factors will shape the institutional environment for the U.S. in the cryptocurrency sector over the next decade and will largely determine whether this industry seeks survival space within a tightly regulated fence or explores the next generation of decentralized finance in new technological and institutional gaps.

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