Senate Democrats' Crypto Stance Sparks DeFi Fears, While Stablecoin Yields Face Lobbying Battle
A leaked proposal from Senate Democrats regarding cryptocurrency regulation has sent shockwaves through the decentralized finance (DeFi) industry, with critics warning it could effectively "strangle" the sector. Concurrently, U.S. senators are receiving a surge of public support for protecting stablecoin yields amidst intense lobbying from traditional banking interests.
Leaked DeFi Proposal Raises Alarm Bells
Industry insiders are expressing significant concern over a reported U.S. Senate Democratic outline for regulating DeFi. The proposal suggests that entities facilitating customer interactions within DeFi operations would need to register with the SEC or CFTC and be regulated as brokers. This broad definition, according to legal experts, could encompass nearly everyone in the crypto space, potentially stifling innovation.
- Industry Reaction: Critics argue the proposal is "fundamentally broken and unworkable," with some stating it would "effectively ban decentralized finance, wallet development and other applications in the United States." There are fears that such stringent regulations could drive responsible development overseas.
- Regulatory Scope: The proposal aims to allow government agencies to hold accountable those "designing, deploying, operating or profiting from a DeFi front-end." However, it also suggests that purely decentralized protocols not generating profit could be considered outside the regulatory perimeter.
- Developer Liability: A key aspect of the proposal seeks to shield software developers from legal liability for their open-source creations, provided they do not profit from running the technology. This addresses a core concern within the DeFi community.
- Legislative Context: This development comes as Senate Republicans and Democrats were reportedly nearing progress on broader crypto market structure legislation. However, Democratic demands for changes to previous Republican drafts remain a hurdle.
Stablecoin Yields Under Fire
In a separate but related development, U.S. senators have been inundated with over 250,000 letters from constituents urging the protection of stablecoin yields. This grassroots effort, organized by the pro-crypto group Stand With Crypto, is a direct response to lobbying by Wall Street banks.
- Banking Lobbying: Traditional financial institutions are advocating for the closure of what they term a "stablecoin payment of interest loophole" within the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. They argue this could lead to significant deposit losses and impact money-market fund activity.
- Consumer Protection Argument: Proponents of stablecoin yields argue that these rewards offer consumers a way to earn value on fully backed digital dollars, drawing a parallel to bank-protected credit card rewards. They contend that banning these yields would harm consumers.
- GENIUS Act Nuance: While the GENIUS Act, enacted earlier this year, prevents stablecoin issuers from directly offering interest, it permits affiliates or exchanges to do so. This distinction is at the heart of the current debate.
- Government Shutdown Impact: The ongoing U.S. government budgetary shutdown is reportedly hindering the Treasury Department and other financial regulators' efforts to implement the stablecoin law and craft necessary regulations.