Here's What Happened at the First US Congressional Hearing on DeFi

The US House Financial Services Committee concluded its first Congressional hearing on DeFi on September 10.

Key Takeaways

➔ The Representatives remained divided as per party lines on the usage and adoption of DeFi.

➔ While the Republicans are pushing for a wider acceptance of DeFi, the Democrats remain sceptic.

➔ The Representatives heard from five witnesses on both sides of the divide.  

Titled 'Decoding DeFi: Breaking Down the Future of Decentralized Finance,' the hearing discussed topics such as tokenisation and blockchain in finance. The Representatives were at opposite ends of the spectrum as per party lines on most subjects.

The House Financial Services Committee is a committee of the US House of Representatives that oversees the entire financial services industry, including securities, insurance, banking, and housing. The Committee also oversees the functioning of the Federal Reserve, the Department of the Treasury, the Securities and Exchange Commission, and other financial services regulators.

The Committee is currently chaired by the Republican Congressman Patrick McHenry, Representative (R-NC's 10th District).

The Republican subcommittee chair French Hill (R-AR 2nd District) opened the session and called for a shift from intermediaries to autonomous, self-executing code, decentralised finance (DeFi) so that no centralised body can control the movement of currency.

However, Democratic Representative Brad Sherman (D-CA 32nd District) referred to DeFi only as a source of crime, sanctions evasion, and tax evasion. He further claimed that a move towards DeFi is “an effort to liberate billionaires from income taxation.”

Meanwhile, Democratic Representative Maxine Waters (D-CA 43rd District) asked if regulatory bodies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission could deal with mass non-compliance by entities claiming to be decentralised to avoid regulatory compliance.

Prominent voters of DeFi and crypto also appeared at the hearing and made their voices heard. Amanda Tuminelli, the chief legal officer at DeFi Education Fund, highlighted the open access feature of DeFi, which promotes financial inclusion. In contrast, she claimed that traditional finance (TradFi) often fails to provide financial access to all.

Peter Van Valkenburgh, Director of Research at Coin Center, criticised the regulators for lacking guidelines on the crypto industry. He decried the possibility of a 100% surveilled and controlled financial system due to tax evasion.

Mark Hays, senior policy analyst at Americans for Financial Reform, was a prominent critical voice at the hearing.

Image: Mark Hays appears at the hearing, Youtube

Hays said that crypto and DeFi industries as “highly volatile, scam-laden, and extremely predatory, which exposes investors to substantial financial losses.” He called for regulating DeFi under the current securities laws.

In the US, crypto and DeFi industries have been negotiating with the government over their status and regulation for a few years now and these hearings indicate a step forward in the direction.