What happened?
Senate Democrats circulated a counter-proposal that would let the Treasury create a “restricted list” for risky DeFi protocols, impose KYC on crypto frontends including non‑custodial wallets, and strip protections from developers. Republicans paused bipartisan market‑structure talks, called the draft incoherent, and warned it could derail existing bills like the RFIA. Industry leaders and lawyers say the proposal could amount to an effective ban on certain DeFi activity and collapse the current negotiations.
Who does this affect?
DeFi developers, wallet creators, and other teams building decentralized apps would face new legal uncertainty and potentially impossible compliance burdens. U.S. users, investors, and crypto businesses could be penalized or cut off from restricted protocols, while exchanges and service providers would need to change onboarding and monitoring practices. The broader tech and finance ecosystem risks losing talent and projects to overseas jurisdictions if rules make U.S. development unworkable.
Why does this matter?
The market impact is high: regulatory uncertainty and the threat of sweeping restrictions can chill investment, reduce liquidity, and drive price volatility as projects and capital relocate offshore. Delays or collapse of a bipartisan market‑structure bill leaves exchanges, custody services, and DeFi with no clear guardrails, increasing compliance costs and systemic risk. If innovation shifts abroad, the U.S. could lose leadership in crypto finance and the associated economic activity.