DeFi at a Crossroads: Will U.S. Regulations Propel or Kill the Industry?

The decentralized finance (DeFi) industry is at a critical point.

As regulators in the United States grapple with how to oversee this rapidly evolving sector, the decisions they make today could determine whether the U.S. remains a leader in financial innovation or falls behind as talent and capital migrate elsewhere.

In a recent interview with Cryptonews.com, Dan Greer, Co-Founder of DeFi App, argued that DeFi is not merely an alternative financial system but an evolution of traditional finance.

“Mass adoption of DeFi hinges on solving its biggest barriers: complexity, cost, and accessibility. The right regulatory framework in the U.S. can accelerate this by providing clear guidelines that enable innovation while protecting users,” Greer explained.

However, if regulators fail to strike the right balance, DeFi risks stagnation or an exodus of projects to more welcoming jurisdictions.

The Risk of Pushing DeFi Offshore

The current regulatory uncertainty has already driven many DeFi startups to seek friendlier environments abroad.

“The worst-case scenario is that restrictive or ambiguous regulations push talent and innovation offshore, leaving the U.S. behind in the next era of financial technology,” Greer warned.

Countries such as Singapore, Malta, and Switzerland have established clear frameworks that foster DeFi growth while ensuring compliance with anti-money laundering (AML) and investor protection measures.

Without regulatory clarity, many U.S.-based innovators are reluctant to launch DeFi projects domestically. Instead, they establish themselves in regions that offer legal certainty.

“Many DeFi projects that would love to be U.S. companies never bother looking at the U.S. because of the regulatory uncertainty,” Greer said.

He added that for DeFi to thrive in the U.S., regulators must focus on fostering innovation while addressing security and fraud concerns.

“Policies that embrace self-custody, decentralized governance, and non-custodial financial services are key.”

He pointed to countries like Switzerland, where regulators have established clear guidelines allowing DeFi platforms to operate transparently within a regulated framework.

In August 2023, the U.S. Internal Revenue Service proposed the controversial “DeFi broker rule.”

It aimed to mandate certain DeFi operators—including front-end service providers for decentralized exchanges—to collect and report user transaction data, including gross proceeds from crypto sales.

On March 4, 2025, the U.S. Senate voted 70-27 to repeal the rule.

Shortly after, on March 11, 2025, the House of Representatives followed with a vote of 292-132 in favor of nullifying it.

The repeal effort saw bipartisan support, with 76 Democrats joining Republicans in overturning the rule.

The next step requires another Senate vote before the resolution is sent to President Donald Trump, who has indicated support for the repeal.

Critics of the rule argued that it violates privacy, stifles innovation, and imposes an excessive burden on DeFi platforms, while opponents of the repeal claimed that removing the rule could facilitate tax evasion and illicit activities.

DeFi Faces Hurdles to Mainstream Adoption

Despite its potential, DeFi still faces major hurdles that prevent it from reaching a mainstream audience.

According to Greer, the three biggest barriers are “complexity, cost, and accessibility.”

Many DeFi platforms require users to understand concepts such as private keys, gas fees, and blockchain interoperability. This steep learning curve discourages widespread adoption, particularly among retail investors.

“The centralized exchange market generates $40 billion annually but serves only a fraction of its potential, with less than 20 million of 631 million CEX users having tried DeFi due to complexity barriers and concerns over asset custody,” Greer explained.

Solving these issues requires the development of more intuitive platforms that integrate key DeFi functions—such as cross-chain swaps, leverage trading, and fiat on/off ramps—into a single, user-friendly interface.

Greer also noted that the next wave of DeFi adoption will likely stem from a combination of retail and institutional participation.

“Platforms that combine the best of centralized and decentralized finance—offering seamless user experiences without compromising self-custody—will drive the next wave.”

Retail investors are increasingly turning to DeFi applications that simplify trading, staking, and earning rewards.

At the same time, institutional players are recognizing DeFi’s potential in areas such as liquidity provision and yield generation.

However, mainstream adoption will only happen if security, compliance, and user experience are significantly improved.

Another major obstacle in DeFi today is the fragmentation between different blockchain ecosystems.

Moving assets across chains often requires cumbersome bridging processes, which can be costly and prone to security risks.

“Cross-chain liquidity is the backbone of the next phase of DeFi,” Greer said. “A more seamless, unified experience is necessary to unlock DeFi’s full potential.”

Innovations such as cross-chain liquidity pools and universal wallets are making it easier for users to interact with multiple blockchains without unnecessary friction.

Emerging Trends: The Role of AI and Automation

One of the most overlooked trends in DeFi is the integration of artificial intelligence (AI).

“AI-driven trading agents and risk management systems are becoming more sophisticated, making it easier for users to automate their strategies and optimize their portfolios,” said Greer.

Automation is also improving security and compliance. AI-powered risk assessment tools can detect fraudulent activity and improve on-chain transparency, addressing one of the biggest concerns regulators have about the industry.

Last year, a research paper explored the convergence of DeFi and AI, noting their potential to revolutionize financial services by enhancing efficiency, accessibility, and personalization.

The paper said that AI-powered DeFi applications such as automated market makers, AI-driven lending, yield farming strategies, and portfolio management, as well as decentralized AI (DeAI) could address data privacy and bias concerns.

However, it mentioned that challenges such as regulatory uncertainty, scalability, security risks, and talent scarcity remain.

Looking ahead, Greer predicts that the industry will be as intuitive as any mainstream financial app.

“In five years, DeFi will be as intuitive as any mobile banking app, with embedded automation that simplifies investing, lending, and trading.”

He also expects more regulatory clarity, paving the way for increased institutional participation.

Stablecoins and tokenized real-world assets (RWAs) will become integral to financial systems, bridging the gap between traditional finance and decentralized finance.

Security will also see significant advancements, with biometric authentication and non-custodial asset protection becoming industry standards.

These developments will create a safer and more user-friendly environment for DeFi participants, according to Greer.

“DeFi isn’t going away, it’s evolving. The U.S. has a choice: embrace it and lead the next era of financial innovation, or push it offshore and play catch-up later.”

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