US Lawmakers Divided Over Decentralized Finance in First-Ever Congressional Hearing

The first Congressional hearing on decentralized finance (DeFi) revealed sharp divisions between Republican and Democratic lawmakers, with debates focusing on DeFi potential and concerns over crime and tax evasion.

The United States Congress held its first-ever hearing on decentralized finance (DeFi) on September 10, during which lawmakers were starkly divided along party lines. Titled “Decoding DeFi: Breaking Down the Future of Decentralized Finance,” the hearing explored critical topics like tokenization and how blockchain technology could transform financial markets.

Republican subcommittee chair French Hill opened the hearing by championing DeFi’s potential, stating that decentralized systems could replace traditional intermediaries with self-executing code. He praised the peer-to-peer nature of DeFi, referencing a 2022 incident where Canadian Prime Minister Justin Trudeau froze protester-linked crypto accounts—a move later ruled unconstitutional. “A peer-to-peer future,” Hill said, “can prevent such authoritarian actions.”

On the other side, Democratic lawmakers expressed deep skepticism about DeFi. Representative Brad Sherman criticized the industry for enabling crime and tax evasion, calling it “an effort to liberate billionaires from income taxation.” Sherman’s concerns were echoed by other critics who view DeFi as a tool for sanctions evasion and financial crimes.

During the hearing, Peter Van Valkenburgh, director of research at Coin Center, argued that the regulatory environment has failed to provide clear guidance to the crypto industry, making it difficult for companies to comply with tax and financial regulations. However, he warned against a fully surveilled financial system, which he believes would infringe on individual privacy.

Democratic Representative Maxine Waters also questioned the regulatory challenges DeFi presents. She highlighted incidents such as the hacking of social media accounts belonging to Laura and Tiffany Trump, which were used to promote a scam DeFi token. Waters expressed concern over the ability of regulators like the SEC and CFTC to manage “mass noncompliance by entities that claim they are decentralized to avoid regulatory oversight.”

Mark Hays, senior policy analyst at Americans for Financial Reform, described the crypto and DeFi industries as “highly volatile, scam-laden, and extremely predatory,” calling for the application of current securities laws to DeFi platforms to protect investors.

However, pro-DeFi voices at the hearing, including Amanda Tuminelli, chief legal officer at DeFi Education Fund, argued that traditional finance relies on intermediaries who can deny access to financial systems for discriminatory or arbitrary reasons. Tuminelli emphasized that DeFi protocols offer open access to anyone with an internet connection, making them a tool for financial inclusion.

The hearing featured testimony from five witnesses, offering perspectives both for and against the burgeoning DeFi industry. Following the hearing, crypto lawyer Jake Chervinsky expressed an emotional response on social media, recalling how DeFi was once dismissed but now commands attention in Washington, DC.

As the debate unfolds, pro-crypto lawmakers advocate for a more open financial system, while critics remain focused on DeFi’s role in crime, scams, and tax evasion.

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