A group of Democratic Senators has introduced a counter-proposal for crypto regulation that critics warn could devastate the industry. The plan suggests creating a “restricted list” for Decentralized Finance (DeFi) protocols deemed excessively risky and imposing new compliance burdens on developers and users.

According to a report from Punchbowl News cited by several industry commentators, the proposal was sent by Democrats on the Senate Banking Committee to their Republican counterparts on Thursday. Key provisions include imposing Know Your Customer (KYC) rules on the frontends of crypto applications, a measure that would extend to non-custodial wallets, and stripping legal protections from software developers.

The reaction from the crypto community was swift and severe. Crypto lawyer Jake Chervinsky described the proposal as exceptionally damaging, suggesting it could eliminate any chance of establishing a functional market structure for digital assets. He noted that such a move would undermine the significant bipartisan support for the CLARITY Act, which passed the House in July, and could effectively “kill DeFi” in the United States.