The DeFi Education Fund and the Blockchain Association have submitted an amicus brief supporting a legal challenge against the Securities and Exchange Commission's (SEC) Consolidated Audit Trail (CAT).

The brief raises serious privacy and security concerns regarding the CAT, especially for digital asset market participants, arguing that it could undermine financial privacy.

These organizations have previously filed similar briefs opposing various regulatory actions, including the SEC’s classification of airdrops as securities.

Consolidated Audit Trail Overview

The CAT, operational since April, is the largest government-mandated collection of personal financial data in U.S. history. It aims to establish a centralized database that tracks all securities trades across U.S. markets.

This database would be accessible to SEC regulators and thousands of private employees without requiring a warrant or probable cause. Critics warn that this level of access could pose significant privacy risks, particularly given the sensitivity of financial data.

The NCLA, which filed the lawsuit in April, contends that the SEC has exceeded its regulatory authority in creating the CAT. The case has garnered over 50 amicus curiae briefs, reflecting widespread concern in both the financial and crypto industries.

Specific Risks

The brief argues that the CAT presents unique risks for digital asset transactions. The SEC’s stance that many digital asset market participants qualify as exchanges, brokers, or dealers could subject these entities to the CAT’s extensive reporting requirements.

This could potentially link personally identifiable information with blockchain wallet addresses, exposing users’ transaction histories to unprecedented scrutiny. Such concerns have sparked fears of regulatory overreach and the erosion of financial privacy.

Laura Sanders, policy counsel at the Blockchain Association, highlighted the broader implications of the CAT, stating:

“The CAT program’s expansive surveillance of personal financial data, including potentially sensitive blockchain transactions, represents a significant overreach and threatens to normalize intrusive government oversight.”

Moreover, the CAT’s vast scope raises significant security issues. With sensitive data from millions of transactions centralized in one database, the CAT could become a prime target for cyberattacks.

This risk is exacerbated by the large number of individuals with access to the system, increasing concerns about potential data breaches that could compromise both traditional financial data and blockchain transaction records.