Leaked DeFi Bill Sparks Industry Backlash in the United States

The leaked U.S. Senate DeFi bill is poised to push DeFi liquidity offshore due to stringent KYC and AML requirements. Industry leaders argue it impedes innovation, risking U.S. dominance in the crypto sector.

A leaked U.S. Senate draft bill proposes stringent Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) requirements for decentralized finance (DeFi) entities. This development has triggered significant opposition from industry leaders and developers across the nation.

The proposal could dramatically impact the DeFi ecosystem by enforcing strict regulations, resulting in potential liquidity migration offshore, according to expert opinions within the industry.

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The leaked DeFi legislation has emerged from Senate Democrats with influential figures such as Senator Ruben Gallego and Senator Mark Warner leading the charge. The bill proposes rigorous KYC and AML measures for DeFi platforms, wallets, validators, and node operators. “Democrats have shown up ready to work… They asked for paper and substance, and we delivered.” — Senator Ruben Gallego. Jake Chervinsky of Variant Fund labeled many aspects as “fundamentally broken” ( source ).

Key stakeholders such as Coinbase CEO Brian Armstrong expressed concerns over the impact on innovation. Summer Mersinger from Blockchain Association noted the compliance requirements as impossible, fearing an incentive for development to move overseas. The financial industry sees risks, suggesting potential institutional exit due to compliance costs.

Historical parallels, such as the Tornado Cash sanctions , highlight severe implications of regulatory measures, often pushing capital to non-U.S. dominated environments. Notably, affected assets include ETH, L1/L2 tokens, and governance tokens, signaling broad market turbulence.

Speculation suggests migration of DeFi liquidity to foreign jurisdictions. While no spike in on-chain outflows has been quantitatively verified, established consensus points to potential flight risks if this proposal becomes law. Consistent alignment with past sanctions emphasizes the ongoing threat to U.S. DeFi participation.

The industry remains on alert, with concerns over the long-term viability of DeFi protocols under U.S. regulation. Affected entities contemplate global reallocation, leveraging historical trends of regulatory impact on crypto innovation and financial landscapes.