- Partisan divide deepens: Senate Democrats’ counterproposal to the RFIA introduces stringent DeFi regulations, pausing markup sessions.
- Industry concerns rise: Stakeholders warn the amendments could effectively ban DeFi and drive innovation offshore.
- Ongoing talks limited: While Banking Committee negotiations stall, commodities discussions continue in the Agriculture Committee.
The long-awaited U.S. cryptocurrency regulatory framework faces a significant setback as partisan disagreements intensify in the Senate. Democrats have submitted a counterproposal to the Responsible Financial Innovation Act (RFIA), halting progress on the bill aimed at providing market structure clarity. This development underscores the challenges in achieving bipartisan consensus on crypto oversight.
Details of the Counterproposal
The Democrats’ amendments, submitted last week, include a ‘restricted list’ for risky DeFi protocols managed by the U.S. Treasury. The proposal narrowly defines decentralization and treats DeFi front ends as financial intermediaries, granting broad regulatory authority. According to reports, these changes have been criticized for being overly restrictive.
Reactions from Industry Leaders
Blockchain advocates have voiced strong opposition. Jake Chervinsky, chief legal officer at Variant, described the counterproposal as ‘deeply unserious’ and akin to ‘a crypto ban.’ He warned it represents ‘an unprecedented, unconstitutional government takeover’ that could set a dangerous precedent for the tech sector.
Similarly, Summer Mersinger of the Blockchain Association stated the language would make DeFi compliance impossible, potentially forcing development abroad.
Political Back-and-Forth
Democrats defend their position, with communications director Jacques Petit accusing Republicans of leaking the proposal and prioritizing politics. He emphasized Democrats are ‘ready to work’ but view setting a markup date without agreed text as illogical.
On the Republican side, staff for Chair Tim Scott paused further meetings until a markup date is set, claiming the leak reveals a focus on narratives over substance.
Current Legislative Status
The RFIA, drafted in July and expected to pass by September’s end, remains stalled in the Senate Banking Committee. Bipartisan talks continue in the Agriculture Committee on commodities aspects, but overall advancement depends on resolving amendments. The bill, which passed the House as the CLARITY Act, seeks to address regulatory gaps without stifling growth.
Balanced Analysis and Risks
While the counterproposal aims to mitigate risks like illicit finance, critics argue it overlooks targeted oversight in favor of broad restrictions. Zunera Mazhar from Digital Chamber suggested focusing on ‘illicit finance chokepoints’ instead.
Delays could prolong uncertainty for crypto investors and traders, potentially increasing compliance costs and encouraging offshore migration. However, proponents view the amendments as necessary for consumer protection and market integrity.
Disclaimer: This article is for informational purposes only and does not constitute advice of any kind. Readers should conduct their own research before making any decisions.
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