The 2024 election cycle has ushered in a profound shift in the political landscape for decentralized finance (DeFi). With over $100 million spent by the crypto industry on various races and the victory of a pro-crypto administration, the prospects for regulation have changed in ways that may surprise some. Amid the headlines and market euphoria—Bitcoin surpassed $90,000 after election night—we in the crypto space must reorient ourselves. The path forward cannot be tied to partisan politics; the discourse must center on how our industry fulfills its new role in Washington.
Transcending Party Lines
Two months ago, I found myself testifying before the House Financial Services Subcommittee on Digital Assets. Those hearings now seem like a snapshot from a different era—before an election cycle in which crypto became a bona fide campaign issue, complete with promises to establish a national Bitcoin reserve and vows to overhaul regulation. What began as a technical discussion about the fundamentals of DeFi evolved into a debate over America’s role in the future of finance.
While the elections have brought changes to key committees, including Financial Services, the fundamentals of responsible DeFi oversight should not shift with political winds. Innovation, consumer protection, and financial inclusion are neither Republican nor Democratic values—they are American values. The election results, particularly in races where crypto policy played a decisive role, such as Bernie Moreno’s victory over Sherrod Brown in Ohio, prove that voters across party lines are motivated to action by these issues.
Education is Paramount
With new faces entering Congress and committee assignments shifting, the September DeFi hearings on foundational education become even more crucial. This election cycle has shown that when policymakers understand our technology, they are more likely to support it, as evidenced by the victories of pro-crypto candidates who took the time to learn the basics.
Industry jargon is esoteric. For example, “wallets” are not leather billfolds (they’re more akin to email), and the smart contracts powering DeFi are neither “smart” nor “contracts.”
Rebecca Rettig, Chief Legal & Policy Officer at Polygon Labs
Even as other U.S. regulators and policymakers begin to engage with DeFi, the industry must do a better job of educating and interfacing with its representatives. Beyond the excellent advocacy of DeFi policy groups like the DeFi Education Fund and Coin Center, founders and builders should personally speak about their work to give the amorphous “DeFi” a tangible face. And policymakers must invest the time to understand the technology—who uses it and benefits from it—before enacting regulation.
Building Useful Applications
During the hearings, representatives inquired about financial and non-financial use cases. It was an honor for me to field questions and discuss The Value Prop, an open database cataloging blockchain-based application use cases across all of crypto, such as Ethereum, Bitcoin, and more. I’ll say the quiet part out loud: speculation is fun for many. But if the industry solely chases the pump, it will never demonstrate DeFi’s transformational value.
Just as we must develop meaningful use cases, policymakers must grapple with why this technology matters. Rep. Mike Flood (R-NE) emphasized its revolutionary potential, focusing on its ability to redistribute power: individuals can own their data, assets, and content without intermediaries. Decentralizing legacy systems piqued my interest years ago in a Williamsburg loft with a four-person DeFi startup that built one of the world’s preeminent protocols. I remain optimistic about what we are building—as Rep. Nickel said—a system “for all.”
Keeping DeFi Safe
Bad actors are everywhere, in both DeFi and TradFi. At the September hearings, it was hard to miss individual representatives’ attention to this issue. But one of DeFi’s inherent features—transparent, real-time transaction data—is also its greatest asset in creating a safer system than the traditional financial world.
Is it possible to trace or track all illicit activity in DeFi? No. And it’s not feasible in TradFi either. But as an industry, we can combat hacks and retrieve stolen funds even without intermediaries. A foreign regulator told me a few months ago that TradFi excels at coming together to offer solutions to new problems—and that crypto should do the same. Earlier this year, I co-authored an article proposing one such solution—a three-part framework for fighting illicit finance in DeFi.
There are grassroots security measures to ensure the system operates as safely as possible, such as ZachXBT, Security Alliance, and others. And importantly, the utility of this technology must not be overshadowed—even in the narrative itself—by a few (high-profile) bad actors. Put simply, the industry still needs to innovate on security, while policymakers must learn that existing financial laws cannot be mapped onto intermediary-free systems.
The Road Ahead
The future of DeFi regulation demands nuanced understanding and deep collaboration. Informed industry leaders and regulators, better use cases, and system security are critical to realizing the long-term benefits of this technology. The U.S. has an opportunity to lead, but only if we approach DeFi with the nuance and foresight it deserves.
