Mr. Jake Chervinsky, general counsel at Compound Labs, has expressed concern that the Treasury Department is attempting to “capture” the DeFi industry through the crypto provisions included in the infrastructure legislation.
According to Jake Chervinsky, general counsel of Compound, the cryptocurrency clauses introduced to the United States infrastructure bill at the last minute were intended to “capture DeFi.”
The crypto tax provisions in the infrastructure bill, which were announced just nine days before it was expected to pass through the senate, Chervinsky, who is also DeFi Chair of the Blockchain Association, said the industry had been “blindsided.” Chervinsky was speaking on the Bankless State of the Network podcast on August 17th.
When it comes to elected officials, Chervinsky appeared willing to give them the benefit of the doubt, noting that previous discussions surrounding the infrastructure bill had “nothing to do with cryptocurrency,” but he attributed more sinister motives for the Treasury Department’s involvement in the legislative process, according to CCN.
In a statement acknowledging that he may have donned a “tin-foil hat,” Chervinsky argued that the Treasury Department was looking for an alternative method of enforcing the strict reporting requirements that former Treasury Secretary Steve Mnuchin had sought to impose on self-held cryptocurrency wallets.
“This is all about DeFi […] This is the Treasury Department trying to work out how to get jurisdiction over DeFi […] and also expand its warrantless surveillance over a peer-to-peer financial system.”
Cherversinky added that he was informed that the Treasury Department first resisted exempting network validators and software developers from the bill’s rigorous third-party reporting requirements because it was concerned that the amended law would not “adequately capture DeFi.”
“That’s why we couldn’t get the language changed to only capture the centralized exchanges,” he concluded:
“We found out very quickly that it wasn’t just a senator’s misunderstanding […] The Treasury Department had played an important role in drafting the language and also [ensuring] that any revision we proposed was going back to the Treasury Department for their approval or rejection.”
According to Chervinsky, Treasury was concerned that the industry would argue that DEX liquidity providers and other DeFi participants are participating in transaction validation and hence should be excluded from the legislation.
“As I understand it, that’s why we then got a competing amendment that specifically said the exemption is only for Proof-of-Work miners,”Chervinsky added.
“The idea that you would carve out an exemption for what is viewed as the really bad, horrible climate change-causing, ocean-boiling Proof-of-Work mining, but then not have that exemption for Proof-of-Stake validators just made absolutely no sense.”
Despite the Treasury Department‘s retreat from its position after finding it couldn’t “steamroll the industry,” Chervinsky expressed concern that unelected Treasury officials wield too much power in the legislative process.
“The idea that secretly, behind the scenes, it isn’t senators we’re negotiating with […] it’s some unknown bureaucrat buried in the Treasury Department — to me, that’s a deeply troubling situation to be in, ”he remarked.
Chervinsky, on the other hand, lauded the crypto lobby’s success in opposing the provisions:
“The entire industry basically without exception banded together to fight this […] Yes, this bill is a threat, but more important […] was how effectively the industry was able to rally and defend itself in D.C.”
