House lawmakers clash at first-ever DeFi hearing

Republican and Democratic lawmakers clashed on their second day back from recess Tuesday morning as House Financial Services Committee members heard from industry experts during their inaugural hearing on decentralized finance.

The House Subcommittee on Digital Assets, Financial Technology and Inclusion gathered for a hearing entitled “Decoding DeFi: Breaking Down the Future of Decentralized Finance.”

The goal, subcommittee chair French Hill, R-Ark., said, was to “explore emerging topics like tokenization and DeFi” and “consider how blockchains can be used in finance.” Some of his colleagues across the aisle, however, questioned whether DeFi has any use beyond facilitating criminal activity.

“What we have here is an effort to liberate billionaires from income taxation,” Rep. Brad Sherman, D-Cali., told witnesses, adding that DeFi technology allows the wealthy to avoid tax obligations.

Read more from our opinion section: The future of finance? TradFi plus DeFi

“Every time a billionaire successfully cheats on his taxes, a member of the Freedom Caucus earns his wings,” Sherman said.

Witness Peter Van Valkenburgh, director of research at Coin Center, later countered Sherman, arguing that regulators have not given actors in the crypto industry enough guidance on how to comply with regulations.

“Tax evasion is a crime. It should be aggressively policed,” Van Valkenburgh said. “I do not, however, think that tax evasion and its existence warrants a 100% surveilled and controlled financial system.”

“A difficult area in the cryptocurrency space has been getting clear tax guidance from the IRS on how Americans can pay their taxes when they earn capital gains, or perhaps their wages, on these networks,” Van Valkenburgh added.

The hearing, which lasted about 90 minutes, wrapped hours before Donald Trump and Kamala Harris are scheduled to meet on the presidential debate stage for the first time. While the Harris campaign has been tight-lipped about any crypto-related policy the Vice President intends to implement should she win in November, the Trump camp has continued to cozy up to the industry.

Trump and his family have endorsed the World Liberty Financial project in recent weeks. The DeFi project is a prime example of how the blockchain industry is fraught with danger, Rep. Maxine Waters, D-Cali., said.

Read more from our opinion section: Don’t villainize Maxine Waters just yet

“Bad actors took advantage of the opportunity to scam potential users. Laura Trump and Tiffany Trump’s X accounts were hacked, and scammers used them to announce links to a coin falsely claiming to represent World Liberty Financial,” Waters said during Tuesday’s hearing. “According to the analysis, at least 200,000 people viewed the posts, and approximately 2000 people purchased $1.8 million worth of the fake token.”

Representatives heard from five witnesses: Brian Avello, chief legal officer of UDHC; Rebecca Rettig, chief legal and policy officer of Polygon Labs; Amanda Tuminelli, chief legal officer of the DeFi Education Fund; Peter Van Valkenburgh, director of research at Coin Center; and Mark Allen Hays, senior policy analyst at Americans for Financial Reform.

Lawmakers will be in session until Sept. 27 when they will break for an election recess until Nov. 12. Tuesday’s hearing comes as Congress’s Sept. 30th deadline to pass a funding bill looms.

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