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The main thing to consider when thinking about whether covenants can or will be used to make a government whitelist or whatever is whether any given covenant construction is superior for that function than the existing 2-of-2 multisig that bitcoin already supports.
To date, assuming that I'm an evil government wanting to restrict the usage of bitcoin, the BEST way to do so is to require custodians to only allow withdrawals to 2-of-2 multisigs with my cosigner as the 2nd party. Now no user can spend without my permission and I can check every transaction for whatever conditions I want. Every covenant idea from CTV to TXHASH to CCV is inferior to a multisig for me the evil government.
Also keep in mind when thinking about the above that any covenant related whitelist would have the same problem as the above which is that I the recipient would have to include the condition (whether additional signer or covenant) in my receive address. Bitcoin, no matter how modified, does not have any concept of sender-added-conditions for receive addresses. For more on that, see here: https://x.com/reardencode/status/1757481697460072808
Just checking, you have already read this thread by Robin Linus? https://delvingbitcoin.org/t/perpetually-kycd-coins-using-evil-covenants/556
Looking forward to that!
Covenants being used to create a whitelist-coin was a big concern when the covenant debate restarted a few years ago. After it was debated for months, the general sentiment settled on the concern being unsubstantiated. About to go to bed, I’m gonna try to write up an example for a covenant tomorrow after the Optech Recap.