Disclaimer: Information found on CryptoreNews is those of writers quoted. It does not represent the opinions of CryptoreNews on whether to sell, buy or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk.
CryptoreNews covers fintech, blockchain and Bitcoin bringing you the latest crypto news and analyses on the future of money.
On Thursday, Senate Democrats presented Republicans with a counter-proposal that would allow the Treasury Department to establish a “restricted list” for DeFi protocols considered excessively risky, leading to an immediate suspension of bipartisan discussions regarding crypto market structure.
The proposal would enforce Know Your Customer regulations on crypto application frontends, including non-custodial wallets, remove protections for crypto developers, and could potentially penalize US citizens who utilize restricted protocols and earn recurring income from them.
GOP Halts Discussions as Bipartisan Negotiations Unfold
GOP staff halted all crypto discussions following the Democratic proposal, with Senate Banking Committee Republican Staff Director Catherine Fuchs stating in an email that meetings would be paused “until we have an agreed upon date for markup.”
Republicans criticized the proposal for lacking formal legislative language, containing unclear policy concepts, and representing a negotiation effort lacking sincerity rather than a genuine regulatory framework.
Crypto attorney Jake Chervinsky indicated that the counter-proposal could eliminate any chance of establishing a structured crypto market framework.
He cautioned that it might undermine the bipartisan support the CLARITY Act received in the House in July, where it was approved with a vote of 294-134.
Chervinsky characterized the proposal as an “unprecedented, unconstitutional government takeover of an entire industry” that does not regulate crypto but effectively prohibits it.
1/ Senate Democrats are attempting to undermine market structure.
A group has just sent a counter-proposal to the RFIA, and it is profoundly unserious. These Senators claim to support crypto, but what they propose is essentially a crypto ban.
It’s difficult to envision a favorable deal occurring at this momenthttps://t.co/yL5bDbdCvq
— Jake Chervinsky (@jchervinsky) October 9, 2025
The Democrats behind the counter-proposal include Mark Warner, Ruben Gallego, Andy Kim, Reverend Raphael Warnock, Angela Alsobrooks, and Lisa Blunt Rochester.
This conflict jeopardizes the GOP-led initiative to enact significant crypto legislation this year.
Senate Banking Chair Tim Scott and other Republicans have been eager to pass a market structure bill before the end of the year but have faced challenges in garnering the necessary bipartisan support.
The disagreement arises as the AFL-CIO urged the Senate Banking Committee on October 7 to reject the Responsible Financial Innovation Act, cautioning that the legislation would expose workers’ retirement funds to crypto volatility while heightening systemic financial risk.
Industry Leaders Caution Proposal Could Drive Innovation Offshore
Blockchain Association CEO Summer Mersinger warned that the Democratic proposal would “make compliance impossible, pushing responsible development and the next wave of financial technology offshore.”
She noted that while DeFi might persist, it would flourish outside the United States, urging “policymakers to remain engaged and continue bipartisan discussions” to ensure legislation fosters rather than obstructs American leadership in financial technology.
1/ A new disappointing proposal from Senate Democrats would effectively ban decentralized finance, wallet development, and other decentralized applications in the United States.
That’s a nonstarter – and it’s inconsistent with America’s long-standing tradition of leading in innovation.…— Summer Mersinger (@SKMersinger) October 9, 2025
Related Posts
Echoing Mersinger, Digital Chamber Vice President Zunera Mazhar also criticized the draft for attempting to “combat illicit finance with outdated tools,” granting the Treasury extensive authority while narrowly defining decentralization and treating frontends as financial intermediaries.
She also advocated for targeting “real chokepoints where illicit finance occurs” through risk-based oversight instead of regulating code or governance, aligning with global standards rather than creating uncertainty.
Among numerous industry leaders expressing their concerns regarding the proposal, Coinbase CEO Brian Armstrong joined them, stating, “It’s a bad proposal, plain and simple, that would set innovation back, and prevent the US from becoming the crypto capital of the world.”
We absolutely won’t accept this
It’s a bad proposal, plain and simple, that would set innovation back, and prevent the US from becoming the crypto capital of the world.
But legislating is a process, and we’re committed to engaging and helping Congress get it right. We will keep… https://t.co/SmHsBgFRoE— Brian Armstrong (@brian_armstrong) October 10, 2025
The counter-proposal conflicts with the Senate Banking Committee’s Responsible Financial Innovation Act draft from September 7, a bipartisan initiative assigning the Commodity Futures Trading Commission oversight of spot markets while curtailing Securities and Exchange Commission overreach.
The RFIA draft introduced protections for DeFi developers, ensuring they can innovate without fear of prosecution following recent incidents involving Tornado Cash and Samourai Wallet developers.
Bipartisan Negotiations Break Down Over Process and Content
According to Politico, Senate Democrats involved in the discussions defended their strategy, with Senator Ruben Gallego’s spokesperson Jacques Petit stating that Democrats arrived prepared to collaborate but Republicans “are crashing out.”
Petit asserted that Democrats provided documentation and substance as requested, only for Republicans to leak the proposal and feign surprise at policy discrepancies.
He described Republican demands to establish a markup date prior to text agreement as “like setting a wedding date before the first date.”
Republicans counter that they have repeatedly sought legislative feedback since June 27 without receiving formal, substantive input on discussion drafts.
Senate Banking Chair Tim Scott’s spokesperson, Jeff Naft, stated that Chairman Scott advocated for the September 30 markup date, hoping for bipartisan engagement, and requested multiple times for Democrats to commit to a markup date essential for advancing legislation.
Gallego leads a coalition of twelve crypto-friendly Senate Democrats negotiating the bill, including Kirsten Gillibrand, Mark Warner, Angela Alsobrooks, and Cory Booker.
They encounter resistance from other party members like Senate Banking ranking member Elizabeth Warren, who has consistently opposed crypto, believing that it poses risks to financial stability and national security.
Trump’s SEC Chair spent his career advising big banks and giant corporations.
It’s no surprise the SEC is now dropping cases against his Wall Street friends.
Just the latest example of how Trump and his Administration are engaging in open corruption on an unprecedented scale. https://t.co/aZD5ardvgl— Elizabeth Warren (@SenWarren) September 25, 2025
Gallego informed reporters late Thursday that Democrats would persist in their efforts but would not be coerced into establishing artificial deadlines for a vote while remaining dedicated to achieving a bipartisan market structure bill.
The post Democrats Propose ‘Restricted List’ for DeFi Protocols in Bill That Could ‘Kill’ Sector appeared first on Cryptonews.
