Concerns Arise Over DeFi Regulation in the U.S. Senate

Developments in decentralized finance (DeFi) have sparked discussions in the U.S. Senate. According to acquired information, the document prepared by Democrat Senators contains suggestions on how DeFi should be regulated.

According to this proposal, DeFi platforms must be regulated as brokers registered with the Securities and Exchange Commission and the Commodity Futures Trading Commission by firms or individuals serving customer needs on the front end. Jake Chervinsky, the Chief Legal Officer of Variant, indicated that this regulation would encompass almost everyone in the crypto ecosystem and warned that it would effectively ban DeFi in the United States.

Blockchain Association CEO Summer Mersinger stated that the proposal would "effectively ban decentralized finance, wallet development, and other applications in the United States." Mersinger noted that such regulation would be impractical, leading responsible development to move overseas.

The Senate's ongoing efforts to equalize the crypto market structure have been overshadowed by ongoing federal government negotiations. However, there are reports that both Democrat and Republican Senators are seeking a veto and that there are expectations for progress on the legislation, although some legislators, like Democrat Senator Mark Warner, have expressed reservations about this issue.

The proposal offers an approach that allows government agencies such as the Treasury Department, market regulators, and the Federal Reserve to identify malicious actors. The proposal states that "everyone who designs, operates, or profits from any DeFi activity" can be held responsible. Furthermore, it is argued that pure DeFi protocols with no revenue will be defined as "sufficiently decentralized" and excluded from regulation.

Additionally, it is suggested that software developers be exempt from legal liability when implementing open-source software without profit. This issue is a significant concern for the DeFi sector.

On the other hand, the market structure previously approved in various votes in the House of Representatives is facing calls in the Senate to use the Digital Asset Market Clarity Act as a template instead of these proposals. However, it is important to note that due to the typical requirement of 60 votes for the legislation in the Senate, bipartisan support is often needed for passage.