Back in early September, the Senate Banking Committee published a second draft of a bill that is supposed to regulate DeFi, and while you may not care much about that, it had language in it that protected software developers by amending current unlicensed money transmission criminal code to include protection for software developers and self-custody.
Yesterday, Senate Democrats produced their own version (Google Doc link) of regulations for DeFi and it is, apparently, quite bad.
Senate Democrats seem to be proposing that pretty much everyone is an intermediary.
It says anyone who deploys or benefits from a DeFi protocol is an intermediary even if the protocol is fully decentralized, i.e., even if compliance is impossible. Jake Chervinsky
They also are going hard on KYC
It explicitly says control of funds is irrelevant. All front-ends, including non-custodial wallets, must collect sensitive personal information and conduct warrantless surveillance to "prevent illicit finance." Jake Chervinsky
Understandably, it sounds like there is quite a bit of backlash
By Thursday morning, Democratic offices (mainly Virginia Senator Mark Warner, who serves as Vice Chairman of the Senate Intelligence Committee and is known for his rigorous approach to regulating DeFi) were flooded with angry calls from industry members, who said the new proposal was unworkable.
In the way of politics, Democrats claim that this proposal "was never meant to be a hardline."
“What was sent to Republicans was not a legislative offer; the document was not written in legislative text, included multiple incoherent policy ideas, and was not a good-faith effort to engage on market structure,” said Banking Committee Communications Director Jeff Naft. source
The House's version of this regulation was passed in July, but the Senate clearly has a way to go on its version.