tl;dr
DeFi policy experts and industry leaders oppose the House’s CLARITY Act, warning it could harm the U.S. DeFi sector by imposing compliance rules that conflict with DeFi’s principles. The bill would force decentralized exchanges to operate like centralized ones, restricting open token trading and imp...
DeFi policy experts and industry leaders have voiced strong opposition to the House’s CLARITY Act, a crypto market structure bill set for a pivotal floor vote. Despite months of restraint, these leaders from nonprofits, advocacy groups, and top firms—speaking anonymously—warn that the bill, while not overtly hostile, is deeply flawed and could devastate the DeFi sector in the U.S. They caution that CLARITY may drive DeFi developers overseas by imposing compliance requirements that clash with DeFi’s foundational principles.
DeFi, or decentralized finance, enables non-custodial, permissionless trading and lending of crypto assets on blockchain networks, exemplified by platforms like Uniswap on Ethereum. Unlike centralized exchanges such as Coinbase, DeFi platforms allow users to trade tokens directly from wallets they control without revealing personal information. Experts argue that the CLARITY Act would force decentralized exchanges like Uniswap and Jupiter to operate more like centralized exchanges, restricting token trading and imposing regulatory burdens incompatible with DeFi’s open nature.
While crypto industry heavyweights have campaigned vigorously for CLARITY, DeFi figures have largely abstained from lobbying, claiming the bill favors a select few big companies rather than the broader crypto community. Critics say the bill is crafted to boost certain corporate interests at the expense of smaller developers, undermining the decentralized ethos. They emphasize that the bill lacks explicit federal preemption and fails to robustly protect self-custody of digital assets by companies, which is central to DeFi’s operation.
The CLARITY Act introduces a new definition of “digital commodities” that would exempt certain DeFi messaging systems but could force DeFi startups to implement restrictive token listing systems similar to centralized exchanges. This approach is deemed technologically unfeasible and contrary to the open accessibility that defines DeFi. Attempts to amend this language were reportedly blocked by Republican staffers, reflecting pressures from traditional finance entities reluctant to see DeFi disrupt core markets such as derivatives.
DeFi advocates fear that gaps in the bill’s protections may allow hostile regulators in the future to target small companies, potentially stifling innovation. With the House vote imminent and the bill’s text largely fixed, these leaders now focus on influencing the Senate’s separate crypto market structure legislation. They urge caution against rushing imperfect legislation, advocating for a measured approach that leverages the remaining years of a crypto-friendly administration to craft stronger, more inclusive policy.