Democratic senators on the Senate Banking Committee have introduced a new proposal that aims to impose tougher regulations on cryptocurrencies — rules that could seriously challenge the operation of decentralized finance (DeFi) platforms.
Shared with Republicans on Thursday, the proposal marks a shift from the committee’s earlier efforts toward a balanced crypto framework, adding provisions that critics warn could cripple the industry.
Reports say that the plan requires crypto apps, including non-custodial wallets where users control their own money, to do strict “Know Your Customer” ID checks, just like banks do. It also takes away legal protections for developers who make blockchain software, which makes them more likely to be sued or arrested.
The move could hurt bipartisan efforts, like the CLARITY Act that the House of Representatives passed in July to make crypto rules fair. The proposal could slow down the pro-crypto momentum that the Trump administration is trying to build in the U.S. as the government shuts down. The goal is to make America a global crypto hub.
Crypto experts slam Democratic plan to curb DeFi
Crypto lawyer Jake Chervinsky slammed the proposal, saying, “It doesn’t regulate crypto; it bans crypto.” He and other industry experts argue that it could effectively outlaw DeFi in the U.S. by allowing the Treasury Department to place risky platforms on a “restricted list,” potentially punishing Americans who use them for profit.
Zunera Mazhar, Vice President at the Digital Chamber, criticized the proposed crypto rules as overly strict and unhelpful. She warned that they could drive innovation out of the U.S. by forcing companies to leave, rather than tackling actual problems like illegal financial activities.