Decoding DeFi Debates: What the Congressional Hearing Says about what the US (and the World) will do about DeFi

• The first-ever US Congressional hearing on decentralized finance (DeFi), held by the House Financial Services Committee, focused on DeFi's potential and risks.
• Republicans generally advocated for the freedom DeFi offers by reducing intermediaries in finance. Democrats were concerned about DeFi's use in crime, tax evasion, and a lack of regulation. Both parties stuck to established arguments.
• Pro-DeFi witnesses argued for better regulatory clarity and financial inclusion.
• Anti-DeFi voices pointed out the volatility, scams, and ongoing need for applying existing securities laws.

We'll summarize the recent US DeFi hearing for you:

Anti-crypto: It's all scams! People are losing money left and right! Also, Trump's family got hacked, and their new crypto project is terrible!

Pro-crypto: DeFi follows in the footsteps of the civil rights movement and could literally transform the world!

Of course, there was more to it than that, but the first-ever US congressional hearing on DeFi was more about clarifying positions on crypto than any concrete actions.

And as usual, crypto and DeFi were used almost interchangeably, with the focus being on crypto's impact on the existing financial system.

Let's look at why the hearing came about, what happened, and how any potential US actions could set the stage for global regulation.

US, Crypto, and You - An Uncertain Future

The hearing, Decoding DeFi: Breaking Down the Future of Decentralized Finance, highlighted the deep divide among US lawmakers.

Two proposed pieces of legislation prompted the discussion. Both are intended to set the stage for more specific bills in the future.

Source: Financial Services

With that in mind,the hearing functioned as a forum to showcase contrasting views, with Republicans generally advocating for a peer-to-peer financial future and Democrats raising concerns over crime and tax evasion within the DeFi sector.

Expert testimonies reflected these divides, with pro-DeFi witnesses calling for regulatory clarity and stressing financial inclusion, while critics emphasized the sector's volatility, scams, and predatory nature.

This was evident in the opening remarks.

(DefI) can also pose a heightened risk of hacks, scams, unequal information, and conflicts of interest that can harm consumers and investors.Congresswoman Maxine Waters, D-California

Waters picked the high-profile case of the Trump family's hack as a prime example, and she wasn't alone in highlighting the potential for DeFi to be misused.

Mark Hayes of Americans for Financial Reform characterized crypto as highly volatile, scam-laden, and frequently predatory,' as well as exposing investors to substantial financial losses.'

Few of those concerns would apply to a potential crypto USD; in fact, increased traceability & transparency of money works to reduce crime.

These comments and others underscored a steady concern with US legislators that crypto and DeFi are the Wild West 2.0: unregulated, dangerous, and (financially) deadly.

But there's still little clarity forthcoming from key US regulators and precious little understanding of how the underlying technology works.

And what does it all say about DeFi beyond US borders?

DeFi Beyond the US

Notably, pro-crypto voices emphasized that legislators need to consider the DeFi situation outside of the US.

Peter Van Valkenburgh, Head of Research at Coin Center, compared DeFi's impact on TradFi to automation and human telephone switchboard operators, where new technology not only transformed how calls were placed but also completely revised privacy concerns and necessitated new rules.

Such a potent transformation requires new rules.

If the US doesn't allow Americans to use and develop peer-to-peer financial systems, those tools will be developed and used overseas.Peter Van Valkenburgh, Coin Center

What's at stake isn't just US legislation; it's the chance to establish the rules for a new global financial system. There's a growing realization that a new financial system is coming. It's just a question of who will build it and who will control it.

In 2038, the world's reserve currency could be $BTC... or it could be China's digital yuan or Japan's digital yen, rather than the potential US digital dollar.

Amanda Tuminelli of DeFi Education Fund pointed out that DeFi offers complex transactions anywhere in the world.' Pushing back against claims of DeFi negligence, she praised the people working to build crypto around the world.

The vast majority of DeFi developers are creative people who want to build a better financial system and want to do so legally.Amanda Tuminelli

The UpshotThe hearing was just that - a hearing with no direct legislative impact.

But the very fact that it happened demonstrates that both pro-crypto and anti-crypto voices are starting to realize the transformational power of DeFi. They're also trying to shape the debate going forward.

However, it provided a forum for pro-crypto voices to highlight the potential for a new financial system built on DeFi. This system is not just for the US but the entire world.

And the hearing emphasized, without ever fully discussing, the single biggest difference between TradFi and DeFi.

One relies on financial intermediaries, such as banks, clearing corporations, securities depositors, market makers, advisors, and the gatekeepers who so often seem to know what will happen before it actually does.

The other allows direct access to nearly any financial tool you can think of.

Which will US legislators choose?

References

• US Rep French Hill on X (X)
• Hearing Entitled: Decoding DeFi (US Gov)
• Peter Van Valkenburgh (Coin Center)
• Ranking Member Waters Delivers Opening Statement (Democrats House Financial Services)

The post Decoding DeFi Debates: What the Congressional Hearing Says about what the US (and the World) will do about DeFi appeared first on The Tech Report.