DeFi Under the Microscope: Industry Leaders Seek Clarity on GENIUS Act

As the U.S. Treasury prepares to implement new regulations under the GENIUS Act, the Blockchain Association is urging for a more nuanced approach to decentralized finance (DeFi). The advocacy group argues that without clear distinctions between financial intermediaries and software infrastructure, the proposed rules could inadvertently stifle innovation and penalize entities that play no direct role in fund management.

Defining the Digital Service Provider

At the heart of the debate is the definition of a "digital asset service provider" under the proposed Section 3 rules. The Association is calling on officials to recognize the fundamental difference between customer-facing financial businesses and the underlying technology that powers them. By grouping validators and self-custody software developers with traditional payment issuers, the industry fears a regulatory overreach that places an impossible compliance burden on those who do not have a direct relationship with the end-user.

Navigating Liability and Global Markets

The group also disputes the proposed standards for "knowing participation" in illegal stablecoin activities, contending that liability should be reserved for those providing meaningful assistance with actual knowledge of wrongdoing. They argue that treating ordinary secondary-market activity as evidence of involvement sets a dangerous precedent for the ecosystem. Furthermore, the Association has highlighted the complexity of regulating foreign-issued stablecoins, suggesting that U.S. service providers should not be expected to investigate every international issuer without access to clear, public regulatory data.