Draft copy of a crypto bill sparks intense debate about the future of DeFi

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(Kitco News) – Regulatory discussions are heating up as a draft copy of the proposed Digital Commodities Consumer Protection Act (DCCPA) has been making the rounds online, with some debating whether the new changes will benefit or hurt the decentralized finance (DeFi) sector.

The bill was made public by Gabriel Shapiro, general counsel for Delphi Labs, who suggested he did it because he believes in “transparency and open discussion about the future of crypto law.”

Crypto representatives widely panned an earlier version of the bill to use an overly broad definition for a “digital commodity platform,” which “could be interpreted as a ban on decentralized finance (DeFi).”

Shapiro highlighted part of the new draft that changed the meaning of a “digital commodity trading facility” to exclude people who develop or publish software, commenting that it “could be a boon” for DeFi and crypto.

The attorney general further said that the origin of the new language is unknown and its inclusion remains a matter of considerable debate.

“Personally, I do not believe that the bill should be passed without respecting basic software freedoms, and that it would be unconstitutional if it required licensing/registration of clean software – I encourage others to review the draft and make their opinions known,” Shapiro tweeted.

The bipartisan bill was originally introduced by Sens. Debbie Stabenow (D-MI) and John Boozman (R-AR) in August. The legislation appears to classify Bitcoin and Ether as commodities, placing them under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

After the bill was introduced, Boozman commented during a press conference that the crypto industry “almost universally” prefers to be regulated by the CFTC, as reported by The Washington Post.

Many in the industry saw the new draft as a step in the right direction, including Martin Hiesboeck, head of research at crypto exchange UpHold. Hisesoboeck tweeted that the new bill “seems to follow the UK/E.U [regulations] broadly, although it uses slightly different terminology,” adding that “the United States is finally getting its act together.”

Not all parties view the bill positively; however, including Web3 startup accelerator Alliance DAO, which said the DCCPA bill “largely threatens DeFi innovation.”

DCCPA greatly threatens DeFi innovation.

The proposed bill:

– gives the CFTC new powers to regulate spot markets
– forces human mediation
– forces projects to sacrifice decentralization

It favors centralized incumbents and kills startups.

The alliance opposes the DCCPA. ??

— Alliance ?? (@alliancedao) 19 October 2022

Other concerns expressed by the DAO include the fact that the bill does not clarify what a digital commodity is or make a clear distinction between tokens that are commodities and those that are not.

This development comes as DeFi activity in the US is under increasing scrutiny amid a push to regulate the digital asset sector. According to data provided by Chainalysis, the US accounts for 37% of all DeFi activity, followed by Western Europe, which accounts for 31%.

Combined with other crypto transactions, the US accounted for more than $1 trillion in the past year, meaning US investors were involved in one in five crypto transactions.