The growing concern of the infrastructure bill on DeFi is obvious, but the crypto community is worried about its impacts on its space. These worries became burning questions during an “Ask Me Anything” session hosted by Enterprise Ethereum Alliance on Sept. 29.
Ryan Selkis (CEO and co-founder of Messari) revealed that the regulatory language aims to tag anyone involved in the DeFi platforms as brokers, regardless of your inputs. He termed this “technically unworkable.” Also, Jeremy Sklaroff of Edge & Node mentioned that the bill unfairly describes blockchain ecosystem participants with a blanket definition. He said,
“Network validators and miners provide a service and oftentimes earn a transaction fee for their work. If this bill passes, the validators and miners would essentially be acting as brokers. Even more worrisome for me though are software developers. If a team maintains smart contracts for a DeFi platform and earns a fee or has incentive with a governance token, then this team likely becomes a broker.”
Sklaroff mentioned that other individuals who are anonymous participants should not be considered brokers in the blockchain ecosystem. As a result, it would be impossible to be compliant with the infrastructure bill. Likewise, he mentioned that DeFi protocols might not enjoy anonymity if anti-money laundering (AML) and know-your-customers (KYC) measures are initiated.
This means that the bill will see to end DeFi innovative disruption in the U.S.
Infrastructure Bill Impacting Each Level of Crypto Industry
The major impact will cut across the DeFi community. As such, there is a great concern for how the new legislation may significantly affect DeFi protocols. But the majority are paying less attention to how it will affect each industry in the crypto space.
An instance is how the bill language addresses some individuals and place labels on them. One of the languages is miners being regarded as brokers. As a result, mining companies would be a force to provide important information about each transaction initiated on their websites. This information may include buyer or seller’s identity, transaction location, taxable gain or loss, and others.
But miners may be perceived as not complying with the regulatory law because their only authority is to validate the blocks. They do not have access to the information embedded in each block. As such, they may not have any data to present to the IRS. And this may mean that they will stop their mining process in the U.S.
There is another growing concern over the nations around the world trying to adopt the U.S. regulatory pace. This implies that there is a probability that the rest of the world may adopt it if there is no successful clarification of the bill’s language. Jeremy Sklaroff said,
“If we aren’t successful in clarifying the language in this bill, I wouldn’t be surprised if other nations adopt something similar.”
While on the other hand, John Wellan—Chairman of the Enterprise Ethereum Alliance—registered his proposition that the institutional adoption of DeFi measures will be possible when each firm accounts for KYC and AML. He said this would be possible regardless of the regulation bill being passed. This helps establish knowing who you are dealing with and where the money is going.
Meanwhile, Ryan Selkis (CEO and co-founder of Messari) revealed how institutional adoption of DeFi may be an advantageous development in the DeFi space. He mentioned that,
“We’re starting to see more institutional interest in DeFi, and I think that can be a net positive for the development of the broader ecosystem, but it only works if these systems are interoperable and the policy framework doesn’t strip away the ability to do peer to peer experimentation. A common-sense regulatory framework would be ensuring that you have centralized intermediaries continue to be regulated the way they already are.”
Then, Sklaroff went ahead to register his question of absolute decentralization after the infrastructure bill was passed. He mentioned that it is important for the IRS to point to an individual that violates a tax code and receive his fines. Otherwise, the bill may not hold. That is, the IRS won’t be able to hold anyone accountable for any violation if decentralization is initiated.
The Long-term Effects
However, there is a strict notice from Sklaroff that the U.S. may not benefit absolutely from possible innovations that may occur in this space in the nearest future. This means that the U.S. may run short on its democratic leverage across the medium.
Despite the obvious infrastructure bill implications, the crypto community now seeks to develop committees to educate policymakers on how the industry works. This provides the U.S. community with a ground to stand firm towards regardless of regulatory actions.