A leaked proposal emerging from Senate Democrats has raised serious concerns across the decentralized finance (DeFi) space. Industry insiders warn that the measures laid out could impose such stringent regulatory burdens that projects operating on the front end may be forced into broker-like requirements.
According to the leaked draft, the language would compel any entity or individual earning revenue from running the front end of a DeFi platform—such as user-interface tools or services that connect users to protocols—to register with regulatory bodies as brokers. This could potentially sweep in nearly all participants in the crypto ecosystem.
Critics inside the industry claim that the definition is so expansive it could “effectively ban” DeFi development in the U.S., including wallet applications and smart-contract protocols.
Overregulation of front ends: A sword over DeFi
The proposal draws a distinction: “pure” protocols that are sufficiently decentralized and do not generate income might escape regulation, but intermediaries depending on front ends are left vulnerable.
Observers say compliance would be “impossible” for many developers, warning the approach could drive innovation offshore.
Lawmakers in the House already approved a crypto market structure measure, and some suggest using it as a Senate template. But achieving passage in the upper chamber will require bipartisan support, making the path forward complex.
