Key Takeaways
Why has the Senate’s draft left DeFi open for review?
Lawmakers and industry players are yet to agree on how to regulate the sector.
What’s next for DeFi?
As per the proposal, DeFi operators remain at legal risk. It remains to be seen whether the industry lobby will push for lenient rules.
The DeFi issue could be a key hurdle to advancing the crypto market structure bill. In the much-awaited discussion draft from the Senate Agriculture Committee, the DeFi section has been largely left with a disclaimer, stating, “seeking further feedback.”
Source: Senate Agriculture
Policy analysts noted that the limited DeFi provisions offer no “safe harbor” for developers or users.
Bill Hughes, a lawyer at ConsenSys, said the proposal protects self-custody wallets and developers of open-source blockchain systems.
However, operators of DEX front-ends, lending protocol interfaces, platforms that route swaps, or anyone running systems that facilitate financial transactions can be sued for any wrongdoing.
Source: X
Hughes summarized the proposal as unfavorable for DeFi players,
“The rule applies only to personal use, not to persons acting as custodians, fiduciaries, or financial service providers for others…This isn’t a safe harbor for operating DeFi interfaces generally.”
The DeFi dilemma
The DeFi dilemma, pushed by Democrats, remains a central obstacle for the Senate Banking Committee as it prepares its own version of the market structure proposal.
Under the two-tiered framework envisioned in the CLARITY Act, the CFTC would regulate commodities, derivatives, and custody aspects of crypto. However, securities, investor protection, stablecoins, DeFi, and other areas fall within the SEC’s purview.
At the Congress level, the Senate Banking Committee oversees the SEC, while the Agriculture Committee handles CFTC activities.
Now that the Agriculture is done with its part, focus will turn to the Banking Committee and harmonizing the DeFi regulation before it can move to the Senate floor vote.
But agreement on DeFi provisions will determine the pace of the bill’s progress, according to reporter Brendan Pedersen.
Odds of passage rise after draft update
For its part, the DeFi Education Fund, an advocacy for developers in the space, hailed the protections in the proposal.
Source: X
That said, the odds of passing the market structure bill, CLARITY Act, by 2025 recovered to 37% after the discussion draft update.
Over the past few days, the chances of this had dropped by 20%, suggesting that the market was likely pricing in the possibility of the bill extending into early 2026.
