Lawmakers Clash Over DeFi in First Congressional Hearing

Lawmakers Clash Over DeFi

In a historic event, U.S. House lawmakers engaged in a heated debate during the first-ever Congressional hearing on decentralized finance (DeFi). On their second day back from recess, members of the House Financial Services Committee met with industry experts to discuss the future of digital assets and blockchain technology.

The House Subcommittee on Digital Assets, Financial Technology, and Inclusion organized a session titled “Decoding DeFi: Breaking Down the Future of Decentralized Finance.” Subcommittee chair French Hill, R-Ark., emphasized that the purpose of the hearing was to explore emerging topics in finance, including tokenization and the role of blockchains.

However, not all lawmakers shared Hill’s enthusiasm for DeFi. Some Democrats voiced concerns, with Rep. Brad Sherman, D-Cali., questioning whether DeFi serves any purpose beyond aiding in tax evasion. According to Sherman, DeFi’s technology could allow the wealthy to avoid their tax obligations, stating, “What we have here is an effort to liberate billionaires from income taxation.”

DeFi's Impact and Regulatory Concerns

Sherman’s comments sparked a rebuttal from Peter Van Valkenburgh, director of research at Coin Center, who argued that the lack of regulatory guidance is partly to blame for non-compliance in the crypto sector. “Tax evasion is illegal and should be policed,” Van Valkenburgh stated, adding that clearer guidance from regulators could help industry participants better comply with tax laws.

Van Valkenburgh pointed out that crypto users often struggle to understand how to meet tax obligations, particularly regarding capital gains and income earned through decentralized networks. He emphasized the need for more explicit tax rules from authorities such as the IRS.

DeFi Risks and Ongoing Debates

The hearing also brought attention to the risks associated with DeFi, particularly concerning fraud and exploitation. Rep. Maxine Waters, D-Cali., highlighted a recent incident involving the World Liberty Financial project, which saw scammers use hacked social media accounts of Trump family members to promote a fraudulent token.

At least 200,000 people viewed the posts, with around 2,000 people falling victim to the scam, collectively purchasing $1.8 million worth of the fake token, Waters noted during the hearing.

Looking Ahead

The hearing, which featured testimonies from five industry experts, lasted approximately 90 minutes. Lawmakers are expected to remain in session until September 27 before breaking for an election recess.

As the deadline for Congress to pass a funding bill by September 30 draws near, discussions on DeFi and the broader blockchain space will likely continue, with lawmakers from both sides of the aisle grappling with the best approach to regulating this fast-evolving sector.