Congress squabbles over DeFi regulation while Rep. Waters criticizes Trump's World Liberty Financial

U.S. lawmakers are showing divides on their approach to decentralized finance as regulators use their own pathways to bring order to the industry.

Lawmakers on the House Financial Services' digital assets-focused subcommittee continued to hash out how to regulate DeFi during a hearing on Tuesday.

"As we consider how blockchains can be used in finance, we must continue expanding our knowledge of the possible costs and benefits as it relates to DeFi," said Rep. French Hill, chair of the subcommittee, at the beginning of the hearing.

Lawmakers have so far left out regulating DeFi in recent bills. In legislation passed out of the House of Representatives this past year, lawmakers opted to direct the U.S. Treasury Department, Securities and Exchange Commission and the Commodity Futures Trading Commission to study DeFi. That bill , led by Republicans, gives new jurisdiction to the CFTC over "digital commodities" and asserts the SEC would oversee digital assets offered as part of an investment contract.

Meanwhile, the SEC proposed a rule back in 2022, which has since been revisited, that would broaden the definition of an exchange to capture decentralized exchanges. The rule could ultimately require decentralized projects to register with the agency as alternative trading systems and has received pushback from the crypto industry.

Regulators have also begun cracking down on DeFi. Uniswap Labs, the developer of the decentralized exchange Uniswap, recently received a Wells Notice from the SEC. Last week, the CFTC said it filed and settled charges against Uniswap for $175,000 in connection to the firm's offering of "illegal digital asset derivatives trading."

There is not a "consensus definition" for DeFi among regulators or in the industry itself, said Rep. Stephen Lynch, D-Mass., during Tuesday's hearing. Lynch also criticized the crypto industry as a whole and said it's been marred by "episodes of implosion" and called for legislation.

"This committee should have explored digital asset topics such as DeFi and tokenization long before legislation was introduced," Lynch said. "The FIT act, which I strongly opposed, excluded DeFi services. I urge this committee to refrain from moving forward with similar legislation that would invite the same consumer and investor protection risks by legitimizing this industry."

Trumps' venture

Rep. Maxine Waters, ranking Democrat of the House Financial Services Committee, criticized the Donald Trump-backed crypto project, World Liberty Financial. Trump's sons — Donald Trump Jr. and Eric Trump — have been behind the new DeFi project, though specific details about what the project will entail have not been ironed out.

So far, the project has faced challenges . Last week, Lara and Tiffany Trump’s X accounts appeared to have been hacked so that posts promoting a token purporting to be associated with World Liberty Financial could be shared.

"While decentralized finance, or DeFi, aims to create greater efficiencies and transparency, it can also pose heightened risks of hacks, scams, unequal information and conflicts of interest that can harm consumers and investors," Waters said. "We've seen this play out in the new DeFi venture that Eric Trump and Donald Trump Jr. plan to launch, called World Liberty Financial."

"Lamwakers have a responsibility here," Waters added.