ConsenSys Legal Expert Criticizes Senate Draft, Citing Ongoing Legal Risks for DeFi Operators
A recent draft of a U.S. Senate bill aimed at shaping the future of cryptocurrency regulation has drawn sharp criticism from the legal counsel at ConsenSys, one of the leading blockchain software companies. Despite making progress in other areas, the draft fails to provide sufficient legal clarity or protection for decentralized finance (DeFi) operators, leaving them vulnerable to potential legal consequences.
The Senate Agriculture Committee recently unveiled its much-anticipated discussion draft of the crypto market structure bill, which is part of a broader legislative initiative to bring digital assets under a comprehensive regulatory framework. While the draft addresses several issues related to market oversight, it notably sidesteps the complexities of DeFi, merely stating that it is “seeking further feedback” on the matter. This lack of specificity has alarmed key stakeholders within the industry.
Bill Hughes, legal counsel at ConsenSys, expressed serious concerns about the implications of the draft for the DeFi ecosystem. According to Hughes, although the proposal includes certain protections for self-custody wallets and developers working on open-source blockchain protocols, it falls short when it comes to individuals or entities operating DeFi platforms. These include decentralized exchange (DEX) front-ends, lending interfaces, and any systems that facilitate token swaps or other financial transactions.
Hughes emphasized that the proposed rules do not provide a genuine “safe harbor” for those running DeFi services. He explained that the regulatory protection offered applies strictly to individuals using blockchain technology for personal purposes and excludes those acting as custodians, fiduciaries, or financial intermediaries on behalf of others. In his words, “This isn’t a safe harbor for operating DeFi interfaces generally.”
This regulatory uncertainty surrounding DeFi has emerged as a central challenge in the broader effort to finalize the crypto market structure bill. The issue continues to divide lawmakers, particularly between Senate committees with differing jurisdictional responsibilities. Under the current two-tiered regulatory framework proposed by the CLARITY Act, the Commodity Futures Trading Commission (CFTC) would handle oversight of commodities, derivatives, and custody-related issues. Meanwhile, the Securities and Exchange Commission (SEC) would oversee securities, investor protections, stablecoins, and DeFi operations.
The Senate Agriculture Committee, which has jurisdiction over the CFTC, has now completed its portion of the legislative work. Attention will now shift to the Senate Banking Committee, which oversees the SEC. A unified approach to DeFi regulation will be essential before the bill can proceed to a vote on the Senate floor. However, the lack of consensus on how to address DeFi could slow the bill’s progress significantly.
Despite the ongoing regulatory ambiguity, some industry groups have cautiously welcomed parts of the draft. The DeFi Education Fund, which advocates for developers and innovation in the decentralized finance space, acknowledged that the draft includes some protective language. However, it remains unclear whether these limited provisions will be enough to safeguard the interests of developers and operators in the long term.
Following the release of the draft, market analysts noted a modest rebound in expectations for the bill’s passage. The probability of the CLARITY Act being enacted by 2025 rose to 37%, up from a prior low, which had reflected growing skepticism that the bill would be delayed until at least 2026. This shift suggests that, while challenges remain—particularly in resolving the DeFi question—there is renewed momentum behind the legislative process.
The regulatory landscape for DeFi remains particularly complex due to its decentralized nature. Unlike traditional financial services, DeFi platforms operate without central intermediaries, making it difficult to assign accountability under existing legal frameworks. Legislators are struggling to determine whether entities behind user interfaces or protocol governance mechanisms should be held responsible for compliance.
Moreover, the absence of clear regulatory status for DeFi raises serious concerns for developers and entrepreneurs. Without defined legal parameters, innovators may face enforcement actions simply for building or maintaining open-source tools that facilitate decentralized financial activities. This legal uncertainty could stifle innovation in the U.S. and drive development to more hospitable regulatory environments abroad.
The current draft also lacks detail on how regulators plan to differentiate between truly decentralized systems and those that appear decentralized but are effectively controlled by a small group of participants. This distinction is crucial, as it could determine whether a platform falls under SEC or CFTC oversight—or both.
Another critical issue left unresolved is how to handle Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements in a decentralized context. Traditional compliance measures depend on centralized control points, which do not exist in many DeFi systems. Without a clear regulatory approach, platforms could find themselves in legal jeopardy simply for enabling permissionless access to financial tools.
Industry stakeholders are urging lawmakers to take a more nuanced approach that recognizes the technological differences and benefits of decentralized systems. Some have called for a temporary regulatory framework or sandbox that would allow DeFi platforms to operate within defined boundaries while longer-term rules are developed.
For now, the future of DeFi regulation in the U.S. remains uncertain. As the Senate Banking Committee prepares its own version of the market structure bill, all eyes will be on whether lawmakers can bridge the divide and produce a coherent strategy for managing the unique challenges posed by decentralized finance. Until then, developers and operators must navigate a legal gray area—one that offers little reassurance despite the promise of innovation at its core.
As the legislative process continues to unfold, the crypto industry will be watching closely. The outcome could shape not only the future of DeFi in the United States, but also influence global approaches to regulating decentralized technologies. Whether U.S. lawmakers can strike the right balance between innovation and oversight remains to be seen, but time is running short to create a workable and fair system for all parties involved.