Democratic Senators' Crypto Plan Threatens DeFi

Strong Reaction from the Crypto Sector

The American crypto sector is experiencing significant unrest following the leak of a document by the Democrats of the U.S. Senate, which outlines how to approach the decentralized finance (DeFi) space. The proposal, initially reported by Politico, suggests that anyone earning income on the front end of DeFi platforms must register with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).

Regulatory Scope Expands

The CEO of the Blockchain Association expressed concerns that the proposed regulation would "effectively ban DeFi in the United States." Jake Chervinsky, the chief legal advisor at Variant, stated on the social media platform X that the language defining who would be subject to regulation would encompass "everyone in the crypto world." Chervinsky criticized, saying, "Many aspects of the proposal are fundamentally flawed and unworkable."

The Future of DeFi at Risk

Summer Mersinger, who leads the Blockchain Association and has recently served as a commissioner at the CFTC, stated that this proposal would "effectively ban decentralized finance, wallet development, and other applications in the United States." Mersinger added, "The written language is unachievable and will drive responsible development overseas."

Developments in the Legislative Process

The Senate's work on the crypto market structure was overshadowed by negotiations on reopening the federal government. Senate Republicans and Democrats were making efforts to advance a unified legislative proposal. However, in August, lawmakers prepared for anticipated reactions regarding anti-money laundering concerns related to crypto, especially from Democratic senators like Mark Warner, a significant figure on national security issues.

Additionally, the proposal allows the Treasury Department, market regulators, and the Federal Reserve to identify individuals who could be linked to DeFi activities and enable them to crack down on bad actors. The proposal suggests that only strictly non-profit pure DeFi protocols could be defined as "sufficiently decentralized." It was also noted that one of the primary concerns in the DeFi space is regarding regulations that would exempt software developers from legal liabilities as long as they do not monetize their open-source creations.

Meanwhile, House members are suggesting that the Senate use their own Digital Asset Market Clarity Act as a template based on a previously passed wide majority market structure. However, it is emphasized that Senate laws generally require 60 votes, indicating that more bipartisan support is needed at this stage. Crypto initiatives, while having the support of many Democratic partners, have clearly articulated their demands for necessary changes in past Republican legislative drafts. ```