The headlines scream about progress. $1.8 billion in crypto assets frozen. 76% exchange compliance. North Korea’s Lazarus Group assets blocked. OFAC is stepping up its fight against illicit crypto activity. On the surface, this development is hard to argue with. Let’s pump the brakes for a second. Have we become so myopic in our emergency response, so concerned with plugging the holes in the dam that we stopped paying attention to the floodwaters rising behind it.
As wise as this non-stop beat down appears from the inside, we could be walking ourselves straight into a digital dystopia. In such a future, financial privacy would be practically impossible. We need to ask ourselves a crucial question: Are we willing to trade fundamental freedoms for the illusion of absolute security?
Security Theater Or Real Safety
Think about it. Additionally, OFAC-designated crypto wallets grew by 32% year-over-year, surpassing 1,245 as of early 2025. That’s a lot of wallets. Here’s a chilling statistic: only 9% of blacklisted wallets have been completely frozen. The rest remain active, but monitored. Monitored! What does that even mean? That’s a big deal because it means the majority of these wallets continue to transact. They aren’t—and even as we’re calmed by assurances that the ship is sailing smoothly, they’re still letting bad actors run amok. To put that in perspective, the average transaction volume per OFAC-listed wallet in 2024 was $1.2 million! But are we really stopping anything? Or are we simply creating an expensive surveillance apparatus that undermines our privacy while giving us the illusion of safety?
It feels a little like airport security post 9/11 to me. We all remove our shoes, subject ourselves to invasive pat-downs and wait in constantly-growing lines. Has it stopped terrorism? Perhaps. But has it dramatically changed our freedom to move around and put us under constant, low-level surveillance? Absolutely. Are we setting ourselves up for the same story with cryptocurrency? The price of this false security will likely be the vast erosion of our privacy.
Innovation's Untouchable Third Rail
Let's consider DeFi. When OFAC announced its first ever sanction against a DeFi protocol in January 2025, it froze $150 million of assets. The stated goal may be closing the loophole for bad actors, but the impact is much broader than that. While these roadblocks may come as a surprise to some, DeFi’s core tenets are decentralization and permissionless access. Some protocol you don’t like? Sanctioning it is an exercise in stopping the rising tide. It’s likely to fail miserably. It would hamper innovation in an area that has the potential to transform financial services. In fact, 42% of DeFi platforms said they observed a decrease in international transactions following the introduction of OFAC compliance provisions in 2024.
Just like we wouldn’t want that to have happened if the government began preemptively regulating the internet in the early 90s because of its awesome potential for nefarious behavior. Plus, absent these rules, would we ever have gotten Amazon, Google or Facebook to begin with. Probably not. But we need to not step on the goose that lays all the golden eggs. If we overpenalize DeFi, we might drive the innovation underground and into the hands of less scrupulous operators with more opaque platforms. This change would rather obfuscate than illuminate illegitimate transactions. That’s not to say regulation isn’t warranted, but a more balanced approach is clearly called for.
Privacy Isn't Just For Criminals
The argument often goes: "If you have nothing to hide, you have nothing to fear." This is a dangerous and simplistic notion. Privacy isn’t about having something to hide, it’s about having something to protect. It’s not about the KYC. It’s about the freedom to be able to transact and not be profiled and judged and discriminated against. It’s not just about keeping your personal data safe from private data interests profiteering from your personal life.
As opposed to going after real cybercriminals, the heightened focus on crypto sanctions creates a chilling effect on legitimate users. The fear of being accidentally swept up in a sanctions net could discourage individuals and businesses from using crypto, even for legitimate purposes. Cross-border remittance flows using crypto in jurisdictions under sanctions have decreased by 21% year-on-year in 2024. In doing so, are we creating perverse incentives that endanger the innocent while failing to promote security?
We have to demand more transparency into the entire sanctioning process. We should support and provide resources to build privacy-enhancing technologies that will protect innocent users. To protect Americans while encouraging innovation, we should take a more nuanced approach to regulating DeFi.
At the end of the day, the issue is not if we should combat illicit activity in the crypto space. Of course, we should. The question is how we do it. Are we prepared to surrender our most basic liberties for the pursuit of impossible, total security? Or is there a better approach that will protect our security and our privacy equally well? The answer, I believe, lies in a measured approach, one that acknowledges the real risks of illicit activity while safeguarding the fundamental rights of individuals. Let's not let fear dictate our future. Let’s create a future where security and privacy are not mutually exclusive.
