Legal Experts: House Crypto Bill May Imperil DeFi and SEC Oversight

Legal Experts: House Crypto Bill May Imperil DeFi and SEC Oversight

A much-anticipated digital assets bill was recently announced by US senators to provide regulatory reform and clarity to the Bitcoin market, others worry about its ambiguous language and potential impact on DeFi. Certain members of the crypto community are optimistic about the Financial Innovation and Technology for the 21st Century Act. 

Since the existing regulatory climate is perceived by the cryptocurrency business as being unfairly antagonistic, it has long sought a more hospitable setting. Analysts argue the new bill might not adequately address concerns. It could pose risks to the DeFi industry. Billy Sebell, XDC Foundation’s executive director, believes unclear language hinders development. It does not promote it.

The bill’s section that might classify many DeFi assets as securities concerned Gabriel Shapiro, general counsel for Delphi Labs, on Twitter. This can limit their development and obstruct the DeFi market’s quick evolution. Shapiro referred to it as a “backdoor DeFi prohibition,” underlining the necessity for the law to have more specific definitions and exemptions.

The bill’s primary sponsors, all Republicans, assert it aims to address regulatory regime shortcomings. They include Glenn Thompson, French Hill, and Dusty Johnson. The 212-page legislation introduces new definitions for digital assets and establishes exemptions. It outlines registration procedures for crypto exchanges with SEC and CFTC.

Notably, the bill distinguished between digital tokens and how they are sold, allowing a digital token sold as part of an investment contract not to be immediately classified as a security. The bill aligns with a recent ruling favoring Ripple Labs. The judge declared XRP not a security in most cases.

DeFi Implications and Challenges for the US Digital Assets Bill

The law aims to establish a standard for registration with regulators based on the idea of “decentralization”. With this action, the definition of a “sufficiently decentralized” crypto project will be codified into law, exempting it from SEC registration requirements. While this may provide some clarification, questions remain over the SEC’s role in making such a decision, which could create a gray area.

Despite these efforts, the bill faces political challenges, particularly from Democrats on the House Agriculture Committee. Some contend that it still favors the crypto business excessively and may weaken the power of the SEC. To overcome obstacles in the legislative process, the bill will also need bipartisan backing.

Jeffrey Blockinger, Vertex Protocol’s chief legal counsel, acknowledged the bill’s challenges. He expressed skepticism about Congress favoring the crypto sector over the SEC. Democrats’ concerns over SEC interference and the FTX exchange’s collapse complicate the bill’s prospects.

The digital assets bill heralds a dramatic change in the US regulatory environment for cryptocurrencies. Some welcome the measure but demand more precision and clarity for a safe regulatory framework in cryptocurrency. The sector will closely monitor the bill’s development and its implications for US cryptocurrency. Potential revisions may occur.


About Valbona

I am a passionate and dedicated student studying Computing and Information Technology at an American university. With a love for reading, writing, and research, I possess technical and problem-solving skills. I have a vision to make a meaningful impact in the world of technology, I aspire to develop innovative solutions that improve lives and empower individuals in the digital age.

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