Decentralised finance is dangerous — look at the Trump sons’ planned DeFi project, a senior Democratic lawmaker told Congress on Tuesday.

The sons of US presidential nominee Donald Trump, Eric and Donald Junior, are soon to launch a token sale under their new project, World Liberty Financial.

The project has already seen “bad actors take advantage of the opportunity to scam potential users,” the House Financial Services Committee’s top Democrat, Maxine Waters, told the hearing.

Waters pointed out that X accounts belonging to Trump’s daughter-in-law, Lara, and daughter Tiffany were hacked last week by scammers announcing a counterfeit coin.

At least 200,000 people viewed the scammers’ post, Waters said, and 2,000 people bought a total of $1.8 million in the fake token.

“Lawmakers have a responsibility here … to consider strong protections to prevent such scams from moving forward,” Waters said.

Significant hearing

Waters spoke during a hearing organised by the digital assets subcommittee of the House Financial Services Committee.

The hearing’s occurrence may be more significant than the content of what was debated during the proceedings.

It’s a sign that Congress is trying to wrap its head around a nascent industry at a time when crypto is a hot topic in the presidential race.

The substance of the hearing highlighted the country’s broadly partisan split over DeFi.

The industry and its mainly Republican supporters fear that if the US cracks down too hard on DeFi protocols, it could send innovation and jobs abroad.

On the other hand, many Democrats, national security hawks, and consumer advocates fear that DeFi’s decentralisation could facilitate hacks, scams, and money laundering — particularly as DeFi moves to become more a part of the mainstream financial system.

$2 billion matter

The subcommittee’s top Democrat, Stephen Lynch, repeated figures from security app De.Fi, whose researchers found that DeFi users lost nearly $2 billion to scams, rug pulls, and hacks in 2023.

The lone DeFi sceptic on the witness panel, Mark Allen Hays — a senior policy analyst with consumer advocacy group Americans for Financial Reform — agreed that security issues plague DeFi projects.

But “the problem goes deeper,” he said, adding that many hacks are inside jobs set up by the founders themselves.

These could be addressed by existing rules under US securities regulation, he said, which demands disclosures from regulated entities.

Crypto firms have strenuously resisted efforts to draw DeFi protocols into the existing securities laws.

DeFi proponents, including Polygon Labs chief legal and policy officer Rebecca Rettig, said the industry is working to combat security risks in DeFi, including by partnering with law enforcement.

Rettig said that DeFi can empower consumers by getting rid of intermediaries in the financial system.

“The hallmark of DeFi is that users retain custody and control over their assets and their data at all times,” she said.

Rettig pointed to Polygon’s database of blockchain-use cases as examples of potential innovation — including getting humanitarian aid to people in Venezuela and Ukraine.

Joanna Wright writes about policy for DL News. Email her at joanna@dlnews.com.