US: Draft “DeFi Killer Law” Leaked

As part of the “Digital Commodities Consumer Protection Act” (DCCPA), the United States Commodity and Futures Trading Commission (CFTC) plans comprehensive crypto regulation. Crypto lawyer Gabriel Shapiro leaked new drafts of this law on Github last week Twitter.

Wording that sounded like a ban on basic decentralized finance activities was of particular concern to the DeFi sector.

However, some big names in the crypto sector, including Sam Bankman-Fried, CEO of centralized crypto exchange FTX, have welcomed the law. During this, Bankman-Fried even formulated its own regulatory standards and received heavy criticism from DeFi enthusiasts and purists.

DeFi ban?

Because the new rules aim to regulate “digital commodity trading facilities”. These should be managed centrally to execute trades, for example. Jake Chervinsky, policy officer for the crypto lobby group The Blockchain Alliance, therefore already saw a DeFi ban in an earlier draft.

Since the DCCPA was worded vaguely in many respects, it is unclear whether simple protocol code, wallets, or even the users themselves can be considered digital traders.

The Crypto Founders Foundation Alliance holds in a tweet notes that the regulations would force human intermediaries and centralized structures of legacy funding on the DeFi sector. Most DeFi platforms would therefore feel forced to abandon their decentralization – an effective DeFi ban.

The wording of the legal text still sounds somewhat less restrictive due to an important addition. Because at least software developers and publishers are exempt from the rules. But according to Gabriel Shapiro, lawmakers are currently debating this small but fine distinction among themselves. Eventually, the CFTC could scrap them at a later date.

Crypto hero or villain?

Amid the debate surrounding the law, FTX CEO Sam Bankman-Fried made himself unpopular with his own ideas about DeFi regulation in the community. First he greeted the DCCPA and looked at it no threat to the sector. He then went a step further by formulating his own regulatory standards.

Bankman-Fried proposes a wallet sanction list that would be maintained by regulators and updated in real time. Wallets that come into contact with these addresses will then also be blocked, at least temporarily. He also suggests implementing identification measures for any DeFi frontend. He also believes that more transparent stablecoin regulations are needed. For hackers, he sees a so-called “5-5 standard” as appropriate, where malicious actors are allowed to keep part of their loot if users are compensated in advance. So looks like the recent case of the DeFi platform “Mango Markets”. The reaction from the DeFi community followed immediately.

Some DeFi purists saw Sam B. Fried’s post as an independent attempt to improve his crypto exchange in the wake of such regulations. The founder of the analysis platform “DeFi-Pulse” called the draft law “Digital Commodities FTX Protection Act”. Twitter even in this context.

“Ideally, a sector group would consider these issues, refine them and publish the standards they feel are appropriate,” Bankman-Fried wrote in her draft. As he should have been aware of his role. And already conceded with the constitution that some of its clauses might not be enforceable. Meanwhile, he has one thread on twitter examines or revises his ideas in more detail.

on a string

Sam Bankman-Fried is not completely without support. Coinbase CEO Brian Armstrong also saw the law as a right steps towards constructive crypto-regulation. And is of the opinion that Fried, in his understanding, “wants to protect DeFi, which I think is great”.

The debate is likely to escalate further. The DeFi community may be right to see problems with the heads of centralized exchanges influencing the rules surrounding their sector. On the other hand, the question arises where crypto-friendly approaches come from if the DeFi sector does not even want to deal with the topic of regulation of ideological beliefs.

Because she’s coming. Presumably at the end of the year in the form of a major legislative package. At least until then, the sector should get its act together to avoid excessive restrictions.

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