US getting ready to “tighten the screws” for DeFi

    17 Aug 2021

    A cryptocurrency amendment was introduced to the US Senate, which would greatly complicate any operations with cryptocurrencies, hitting decentralized services the hardest. And it is backed by the Joe Biden administration.

    There is a lot of fuss around the second cryptocurrency amendment to Joe Biden’s $ 1 trillion infrastructure bill HR 3684. On August 6, the American president stated his support for it, which puts all POS cryptocurrencies under threat. If the bill becomes law, developers and validators in POS networks (for example, Binance Smart Chain) will be forced to collect users’ personal data. This will also affect DeFi services, which will essentially be equated to financial market brokers.

    So what is really going on? This is exactly what the long-predicted by the experts “war” between the traditional finance sector and the cryptocurrency industry looks like. Lawmakers have now squeezed an anti-cryptocurrency agenda into a widely approved bipartisan infrastructure bill (alongside road construction, etc.) – yet another piece of legislation in a massive “Biden plan”.

    The plan itself is quite impressive: if it succeeds, the United States will once again confirm its status as a world superpower. But various lobbying groups are trying to use the bills adopted within the plan’s framework as an “omnibus” to push their preferred changes into the legislation. This is the current situation with DeFi: lobbyists representing the interests of traditional banks are trying to implement an amendment that will severely curtail the competitive advantage of decentralized finance.

    Moreover, the proposed norms are written in such a way that financial regulators will be able to interpret them as they please. Judge for yourself:

    1. A clause has been added that expands the definition of “broker” in the Internal Revenue Code to cover almost everyone involved in cryptocurrency, including non-custodial participants such as miners, forcing them all to apply KYC requirements.

    2. The bill expands the definition of “broker” to include “any person responsible for and regularly providing any digital asset transfer services”.

    3. These requirements apply to PoW miners and PoS validators, since the description “providing a service for a digital asset transfer for consideration” fits both

    4. The provision hits a wide range of DeFi market participants such as DEX LP, liquidators, protocol managers, etc.

    Simply put, if the bill goes through, all DeFi activities in the US may stop. Any DEX and p2p services for working with cryptocurrencies could then be outlawed by the authorities.

    There are actually two amendments to the bill currently being debated. The first was put forward by Senators Mark Warner, Rob Portman, and Kyrsten Cinema, and it suggests tightening all the rules for working with cryptocurrencies. Any person providing crypto-related services and receiving a fee for doing so will have to report to the IRS as a broker. The requirements will affect not only companies working with cryptocurrencies but also miners, blockchain node operators, Proof-of-Stake network validators, wallet developers, liquidity providers in DeFi protocols, and other previously unaccountable citizens.

    In turn, Senators Ron Wyden, Cynthia Lummis, and Pat Toomey introduced their own amendment to the bill. It doesn’t touch miners in Proof-of-Work networks, validators in Proof-of-Stake networks, developers, and wallet creators. The amendment has received support from a number of legislators as well as 114 cryptocurrency business players, including Twitter CEO Jack Dorsey. But this amendment also creates a lot of problems for the industry, as Tesla CEO Elon Musk has already pointed out. He said: “Now is not the time to pick winners and losers in crypto technology. There is no apparent crisis that would require hastily adapting current legislation.”

    The first of the two amendments received harsh criticism from the head of the largest cryptocurrency exchange, Coinbase, Brian Armstrong: “Mark Warner proposed amendments that define which fundamental technologies are acceptable in the cryptocurrency industry and which are not. This is a disaster. Senator Warner wants PoS validators to adhere to the impossible, but not PoW miners. The government is trying to choose winners and losers in a nascent industry where new technologies emerge every month. They are sure to make a mistake.”

    But don’t get it twisted, if the choice is between those two amendments, only one thing can be said: “Both are worse!”

    And here, it is worth noting that the battles around the bill have already hit its main initiator and crypto industry enemy #1 in the United States – Janet Yellen. Journalists unearthed the information that the 74-year-old US Treasury Secretary received more than $ 7 million over the last year alone from various financial institutions and banks. Yellen’s declaration states that she was paid “speaking fees” from Citibank, BNP, Barclays, Citadel, and others.

    Ron Hammond, one of the Blockchain Association leaders, commented on the matter: “She now serves her real employers – banks, and not the United States public interest. People know this and are ready publicly criticize new amendments and laws.”

    Indeed, many in the crypto industry are now claiming that the $ 7 million could have been given to Yellen for promoting the ban of one of the banks’ main competitors, DeFi.

    Of course, the Senate may well reject the amendments described in this article. It is even likely. But they do a good job of showing the “attack vectors” of traditional financiers on the cryptocurrency industry.

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