- Senate Democrats’ DeFi proposal sparks fierce backlash from crypto leaders.
- Industry warns new rules could push blockchain innovation overseas entirely.
- Lawmakers remain divided as Washington struggles to shape crypto regulation.
Senate Banking Committee Democrats have floated a new six-page proposal aimed at reining in decentralized finance, sending it across the aisle to Republicans and sparking a wave of backlash from the crypto world.
Under the draft, Treasury and federal regulators would get authority to decide when a person or entity “exercises control or sufficient influence” over a DeFi protocol. They would also determine if a protocol is “sufficiently decentralized.”
In addition, the proposal defines an “intermediary” broadly. Those who design, deploy, control, operate front ends, or materially benefit from DeFi systems would fall under oversight, especially for protocols handling covered financial activities.
The draft also seeks to draw clear lines between SEC and CFTC jurisdiction and introduces the term “ancillary assets” to identify cryptocurrencies that do not qualify as securities.
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Intense pushback from crypto sector and Republicans
Leaders in the crypto industry virtually united in condemnation. According to Summer Mersinger, the proposal would “effectively ban decentralized finance, wallet development and other applications.” She warned the language is unworkable and would push innovation offshore.
Variant Fund’s chief legal officer Jake Chervinsky called the plan “unserious,” adding that the proposal would amount to a de facto crypto ban. According to his post, “It’s hard to imagine a good deal happening right now.”
Republicans on the Banking Committee also rejected the text. A committee spokesperson said what was sent to them “was not a legislative offer” and contained incoherent policy ideas. They criticized it as not a sincere step toward market structure reform.
Lawmakers struggle to align on crypto framework
Democrats have framed their earlier work as seeking to close regulatory gaps and fold crypto issuers into existing frameworks. The Banking Committee has yet to set dates for debate or markup.
Meanwhile, Senate Agriculture, which oversees the CFTC, has not released its own crypto bill. Partisan tensions and industry alarm suggest that crafting a Senate version to reconcile with the House’s earlier legislation will prove contentious.
The Senate Democrats’ DeFi proposal comes at a critical moment when Washington eyes a unified framework for crypto. Fierce opposition and unclear regulatory language suggest the path ahead will be fraught with disagreement.
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