US Democrats Target DeFi With Risk-Based Restrictions
New Democratic proposal seeks to limit high-risk DeFi protocols, sparking fears of stifling innovation and driving projects offshore.
- Democrats propose a “restricted list” for risky DeFi platforms
- Critics say the move could hurt innovation and push developers abroad
- The bill challenges a broader crypto market structure proposal
A new proposal by US Democrats is shaking up the crypto world. The draft legislation suggests creating a “restricted list” targeting DeFi protocols considered too risky for the financial system. This move is seen as a direct counter to the Republican-backed crypto market structure bill, which leans toward clearer and friendlier crypto rules.
Under the new proposal, DeFi platforms that fail to meet certain regulatory standards or are deemed a threat to financial stability could be added to the list. This could mean limits on their operations within the US or even outright bans. The aim, lawmakers say, is to protect investors and prevent illicit activity.
However, many in the crypto space are sounding the alarm.
Critics Say It Could “Kill DeFi”
Industry leaders and developers argue that such a restriction-based approach could “kill DeFi” in the United States. Unlike centralized crypto exchanges, DeFi protocols are open-source and decentralized by nature, often run by code rather than companies. Attempting to regulate them in the same way as traditional financial institutions may not only be ineffective but also damaging.
“There’s a real risk that innovation will be driven offshore,” warned one DeFi developer. “Projects will simply move to countries with more favorable rules.”
The potential for overreach could create a chilling effect on development, investment, and open-source contributions in the space.
Political Showdown Over Crypto Rules
The Democrats’ proposal arrives as a response to the Republican-backed crypto market structure bill, which aims to define clear rules for digital asset trading and clarify regulatory responsibilities between the SEC and CFTC.
By introducing this more cautious framework, Democrats are signaling that they prioritize risk reduction over innovation when it comes to decentralized finance. The outcome of this political tug-of-war could define the future of DeFi in America.
For now, the crypto industry is watching closely, hoping for balanced regulation that fosters both security and innovation.
