US Senate Push for DeFi Restrictions Sparks Crypto Market Concerns

Democrats on the US Senate Banking Committee have drafted a proposal that could impose stringent regulations on decentralized finance (DeFi) platforms. The leaked document suggests treating any entity involved in designing, deploying, or profiting from DeFi front-ends as brokers, requiring registration with the SEC or CFTC. The proposal also extends Know Your Customer (KYC) and Anti-Money Laundering (AML) obligations to DeFi interfaces, including certain non-custodial wallets.

The Treasury Department WOULD gain authority to maintain a restricted list of high-risk protocols. While the draft exempts fully decentralized protocols and non-profit open-source developers, industry experts argue the compliance requirements would be prohibitively high for most US-based projects.

Crypto leaders have reacted strongly to the proposal. Jake Chervinsky of Variant called it unworkable, suggesting it amounts to a de facto ban on US DeFi front-ends. The Blockchain Association's Summer Mersinger warned it could drive innovation offshore. Market reaction was immediate, with a basket of DeFi tokens falling 3-4% on the news.