Coinbase (NASDAQ:COIN) CEO Brian Armstrong warned that a sweeping new proposal advanced by Senate Democrats is “a bad proposal” that would “set back innovation.”
Senate Democrats push sweeping rule on DeFi brokers
The draft, first reported by Politico, reportedly outlines how Democrats on the Senate Banking Committee plan to classify decentralized financial operations.
The language suggests that companies or individuals providing front-end access to DeFi platforms must register with the Securities and Exchange Commission or the Commodity Futures Trading Commission as broker-dealers.
According to the report, this definition could include “any person designing, deploying, operating or benefiting from a DeFi front-end”, while protocols that do not generate any revenue could be considered “sufficiently decentralized” and remain outside the scope of the regulation.
Industry lawyers say the proposal, if adopted, would create broad liability and force open source developers and DeFi startups to register under complex securities rules.
Blockchain Association Calls ‘DeFi Ban’ Industry Killer
The Blockchain Association blasted the proposed rule, warning that it could drive the $1 trillion DeFi industry overseas and result in a “DeFi ban” in America.
CEO of the Blockchain Association Summer Mersinger said the plan would “effectively ban decentralized finance, wallet development, and other applications in the United States.”
“The text as written is impossible to comply with and would promote responsible development abroad,” Mersinger said in a statement.
She urged lawmakers to “stay at the table” and ensure that any legislation “supports, rather than hinders, American leadership in financial technology.”
Coinbase CEO Armstrong echoed his call, saying the proposal would prevent the United States from becoming “the crypto capital of the world.”
The industry’s reluctance highlights growing tensions in Washington over how to manage DeFi as part of the broader debate over crypto market structure.
Republicans on the Senate Banking Committee have already called the proposal “unworkable,” with a committee spokesperson calling it “not a good faith effort to engage on market structure.”
Analysts warn of $1 trillion capital flight
Market analysts say the proposal could accelerate a shift of capital to offshore jurisdictions, similar to trends seen in previous regulatory crackdowns.
Standard Chartered Plc (LON:STAN) estimates that DeFi-led stablecoin growth could attract $1 trillion in deposits from emerging market banks over the next three years.
JPMorgan Chase & Co. (NYSE: JPM) forecasts $1.4 trillion in new demand for dollar-based stablecoins by 2027.
With major American banks including Goldman Sachs Group Inc. (NYSE:GS), Citigroup Inc. (NYSE: C), and UBS Group AG (NYSE:UBS) currently exploring blockchain-based settlement systems, analysts warn that strict DeFi rules could slow U.S. progress in digital asset innovation.
Wall Street banks are quietly building blockchain settlement rails
Senate discussions on crypto market structure have stalled due to negotiations over government funding.
Even though the House has already adopted its Digital Asset Market Clarity ActSenate Democrats and Republicans remain divided over how to divide oversight between the SEC and CFTC.
The new DeFi proposal adds another layer of complexity.
It gives the Treasury Department the authority to define when a protocol or entity “exerts sufficient control or influence” over a decentralized platform.
Why it matters
DeFi is not just another crypto experiment, it is the architecture that powers global stablecoin flows, on-chain lending, and automated markets.
If the United States decides to classify front-ends as brokers, it will effectively criminalize the gateways that make these systems usable.
The irony is that while Washington debates restrictions, US banks like Goldman and Citi are building their own symbolic settlement rails.
This divergence could pave the way for a two-tiered financial system, in which Wall Street captures permissioned blockchains and DeFi innovation migrates overseas, leaving American retailers and startups excluded from the next trillion-dollar wave.
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