Democratic Senators' DeFi Proposal Sparks Major Backlash
By: Eliza Bennet
In recent developments, a confidential draft bill from Senate Democrats has surfaced, aiming to substantially increase regulation on decentralized finance (DeFi) platforms in the United States. The proposed bill would extend stringent Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) requirements to various components of the DeFi ecosystem, including interfaces, validators, and even node operators, which are integral to the operation of these platforms.
This leaked document comes as a direct counter to a House-endorsed market-structure bill, indicating a deepening divide within congressional ranks on how to approach the burgeoning DeFi market. The proposal suggests implementing mandatory KYC controls on all DeFi applications facilitating financial transactions. This includes browser-based wallets, potentially affecting how liquidity interfaces operate across the industry.
Moreover, the bill grants the Treasury Department the authority to compile a 'restricted list' of DeFi protocols deemed too risky for American users, a move that many in the industry see as potentially stifling innovation and pushing market liquidity to offshore platforms. Critics within the crypto community argue that such a unilateral measure could accelerate the migration of trading activities to less regulated environments, further diminishing the U.S.'s share of global crypto liquidity.
Notable voices in the industry, such as Jake Chervinsky from Variant Fund, have pronounced sharp criticism of the proposal, deeming it unworkable and a potential infringement on the rights of innovators in the space. Additionally, Brian Armstrong of Coinbase and Hayden Adams of Uniswap have echoed that such legislation may regress innovation and cede leadership in crypto finance to other nations.
As the discourse continues, many in the DeFi and broader crypto industry identify this proposal as a fundamentally flawed approach that conflates regulating code with addressing illicit activity. This conflation, they argue, could set a dangerous precedent not just against cryptocurrency innovation but against technological advancements across industries.
