US lawmakers divided in first Congressional hearing on DeFi

United States lawmakers were divided down party lines at the first-ever Congressional hearing on decentralized finance (DeFi).

The House Financial Services Committee’s Sept. 10 hearing — “Decoding DeFi: Breaking Down the Future of Decentralized Finance” — aimed to explore emerging topics like tokenization and how blockchains can be used in finance.

The nearly two-and-a-half-hour-long hearing highlighted the disunity between Republican and Democratic lawmakers over the technology. 

Republican subcommittee chair French Hill opened the hearing by stating, “Substituting intermediaries for autonomous, self-executing code, decentralized finance can shift the way the financial markets and transactions are currently structured and governed.”

He advocated for “a peer-to-peer future where the Canadian prime minister of the future can’t freeze off your bank account just for going to a protest,” a reference to Justin Trudeau’s 2022 freeze of crypto headed to protesters which a court ruled was unconstitutional.

Crypto critics such as Democratic Representative Brad Sherman were not convinced, claiming that DeFi was only used for crime, sanctions evasion, and primarily tax evasion. 

“What we have here is an effort to liberate billionaires from income taxation,” he said. 

Director of research at Coin Center and hearing witness, Peter Van Valkenburgh, argued that regulators have not given the crypto industry enough guidance on how to comply and avoid situations such as tax evasion. 

“I do not, however, think that tax evasion and its existence warrants a 100% surveilled and controlled financial system,” he said.

Democratic Representative Maxine Waters mentioned the hacking of Laura and Tiffany Trump’s X accounts to promote a scam token related to the Trump family DeFi project “World Liberty Financial.”

She questioned the ability of regulators such as the Securities and Exchange Commission  and the Commodity Futures Trading Commission to deal with DeFi platforms and “mass noncompliance by entities that claim they are decentralized to avoid regulatory compliance.”

Senior policy analyst at Americans for Financial Reform, Mark Hays, described the crypto and DeFi industries as “highly volatile, scam-laden, and extremely predatory, which exposes investors to substantial financial losses.” 

He believed that current securities laws should apply to DeFi. 

Amanda Tuminelli, the chief legal officer at DeFi Education Fund said in her opening statement that traditional finance “relies on intermediaries that often serve as gatekeepers to finance.”

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“Big banks can and do deny access to the system for discriminatory reasons or no reasons. But DeFi is open access, anyone with an internet connection has access to a DeFi protocol and that is the epitome of financial inclusion,” she added.

The Congressional Representatives heard from five witnesses on both sides of the digital divide for and against crypto and DeFi. 

Crypto lawyer Jake Chervinsky commented in a post on X that he was “feeling emotional” after the hearing.

“I remember years ago when DeFi was like ten projects that no one thought would amount to anything. Now it’s on full display in the halls of power in DC.”  

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