DeFi Education Fund Pushes for Nuanced U.S. Regulation Framework

The DeFi Education Fund (DEF), a prominent crypto advocacy group, has taken a proactive step in shaping the regulatory future of decentralized finance (DeFi) in the United States. In response to the Senate's inquiry on its proposed digital asset market structure bill—famely the Responsible Financial Innovation Act—the DEF submitted a detailed letter outlining a framework for regulation that is both effective and innovation-friendly. The group is calling for a nuanced regulatory approach that differentiates between DeFi developers and centralized financial entities, arguing that the former do not operate under the same control structures and should not be held to the same regulatory standards [1].

Central to the DEF’s argument is the recognition that DeFi protocols are inherently different from traditional financial intermediaries. Unlike centralized institutions with clear lines of control and accountability, DeFi platforms often operate through open-source code governed by decentralized autonomous organizations (DAOs) or token holders. This structure raises complex questions about liability and enforcement, as there is no single entity to hold accountable in a truly decentralized system. Applying traditional financial regulations to such systems could not only stifle innovation but also create regulatory absurdities where enforcement becomes impossible [1].

The DEF has proposed four key goals for the upcoming legislation. First, it emphasizes the need to distinguish between DeFi developers and centralized firms, noting that developers contribute to open-source code without ongoing control over the protocol after its deployment. Second, it calls for clear legal definitions of intermediaries, enabling regulators to identify which entities must register with the government. Third, it suggests criteria for determining whether a protocol is genuinely decentralized, as many projects may use the term without embodying its principles. Finally, the DEF advocates for a technology-neutral regulatory framework that focuses on the function being performed rather than the underlying technology [1].

In parallel, the U.S. House of Representatives has also taken action with the passage of the Digital Asset Markets Clarity Act. These legislative developments indicate a growing recognition of the need to regulate DeFi in a way that fosters innovation while maintaining consumer protection. However, the current regulatory landscape in the U.S. remains fragmented, with a patchwork of state-level laws that create uncertainty for developers and projects operating across state and international boundaries. The DEF therefore supports federal preemption—where federal laws would override conflicting state laws—to provide a unified, consistent, and scalable regulatory environment [1].

A technology-neutral and function-based approach to regulation is seen as a key enabler of future innovation. It allows rules to remain relevant as technology evolves and avoids stifling progress through overly prescriptive or outdated measures. For instance, a regulation aimed at smart contracts should focus on the service being provided—such as lending or trading—rather than the specific technology used to deliver it. This approach ensures flexibility while still addressing core regulatory objectives like transparency and accountability [1].

While the proposed regulatory framework offers significant benefits—such as enhanced investor confidence, reduced compliance burdens, and a clearer market environment—it also presents challenges. Regulators must navigate the complexities of decentralized systems and distinguish between genuine decentralization and superficial claims. At the same time, they must balance innovation with risk mitigation, particularly in a sector that operates beyond traditional borders. The DEF’s advocacy highlights the importance of fostering a regulatory environment that supports responsible innovation while protecting users from potential risks [1].

The DEF’s efforts represent a crucial step in the broader conversation about the future of finance. By engaging with policymakers and emphasizing the unique characteristics of DeFi, the group is helping to shape a regulatory landscape that can accommodate the sector’s rapid evolution without stifling its potential. As legislative discussions continue, the clarity and foresight proposed by the DEF could be instrumental in ensuring that DeFi thrives in a responsible and sustainable manner [1].

Source:

[1] DeFi Regulation: Urgent Progress for Decentralized Innovation, https://coinmarketcap.com/community/articles/688d54d4c0e5862b136cc6a4/