The DeFi Education Fund (DEF) has called on the USO Senate Banking Committee to take a more measured approach to DeFi regulation. In a joint letter with DEF outlined a framework to safeguard innovation without undermining national security or consumer protections.
Key Takeaways:
- Distinguish DeFi Developers from Intermediaries: DEF urges the Senate to differentiate between DeFi developers and intermediaries in regulation.
- Non-Custodial Software: The group warns that treating non-custodial software code as a financial service sets a dangerous precedent.
- Federal Preemption: DEF emphasizes the need for federal preemption to override conflicting state laws and prevent well-funded traditional financial players from exploiting state-level loopholes.
Concerns with Current Regulation:
- Tornado Cash Case: DEF criticizes current FinCEN guidance used in the prosecution of Tornado Cash developer Roman Storm.
- Ancillary Assets: Andreessen Horowitz (a16z) argues that the current proposal could open legal loopholes and weaken investor protections, particularly around the treatment of ancillary assets.
Recommendations:
- Clear DeFi Rules: DEF pushes for four key pillars, including distinguishing between DeFi developers and intermediaries, defining which entities are required to register with federal authorities, setting decentralization criteria, and ensuring technology-neutral rulemaking.
- Codify Decentralization Criteria: a16z recommends codifying a control-based decentralization model to assess whether any party retains unilateral control over a blockchain system.
Industry Support:
- Coalition of Top Crypto Firms: The letter was co-signed by a16z Crypto, Jito Labs, Jump Crypto, Paradigm, Multicoin Capital, Solana Policy Institute, Uniswap Foundation, Uniswap Labs, and Variant Fund.
The DEF and industry leaders stress the importance of nuanced understanding and careful regulation to balance market growth and financial oversight in the DeFi space