SEC Searches For New Tool to Analyze Smart Contracts, Blockchains

The U.S. Securities and Exchange Commission (SEC) is on the hunt for a new kind of blockchain forensics tool, specifically one that can analyze smart contracts.

The SEC put out a call for various software firms to submit bids for this project on July 30, 2020, giving interested parties until August 13, 2020, to prepare a suitable proposal for funding to develop this tool. The request specifies that this tool must be based on distributed ledger technology, and that it must be able to “analyze and detail code within blockchains and other distributed ledgers, in support of [the SEC’s] efforts to monitor risk, improve compliance, and inform Commission policy with regard to digital assets.” 

Additionally, only firms with a value of $30 million or lower are eligible to bid on this contract, preventing larger blockchain-related businesses from becoming directly involved.

This development marks an evidential shift in SEC strategy, with the regulatory agency pursuing an expansion of its ability to investigate sophisticated blockchain technology. Another example of this shift emerged in July 2020 when the SEC published a notification of its intent to award blockchain analytics company CipherTrace with a one-year contract. Though the details of this contract were not made clear in the notification, it included the statement that “CipherTrace products are the only known blockchain forensics and risk intelligence tool that can support the Binance coin (BNB) and all tokens on the Binance network.” 

The SEC seems then to have tapped CipherTrace specifically due to its existing work with Binance’s blockchain, likely stemming from the partnership formed between the two in October 2019 to introduce protocols to enforce new regulatory compliance measures. When this partnership produced an on-chain analytics software one month later, Binance CEO Dave Jevans claimed that “regulators across the globe demand better transparency, security and compliance,” and that “Binance continues to prove it is serious about protecting its investors and is taking the necessary measures needed to grow and diversify its audience.”

With the SEC taking apparent action to look closely at Binance or other blockchains, alongside evidence that it would like to better analyze smart contracts, it seems as if the body is taking blockchain investigation and supervision more seriously. The nature of this supervision, however, will likely not be hostile to these types of enterprise. 

On August 6, 2020, SEC Commissioner Hester Peirce received confirmation from the U.S. Senate for another term, which will last until 2025. Claiming in her nomination hearing that cryptocurrency is “going to be here to stay, and I would like us to set up a regulatory framework that works well for crypto,” 

Peirce continues to demonstrate an attitude of using regulations to help the burgeoning industry flourish. Regardless of the methods that the commission is employing, its intention is likely not hostile toward the blockchain industry.

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SEC Searches For New Tool to Analyze Smart Contracts, Blockchains
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