DeFi Debrief: Week of March 30, 2026

Deeper Dive: Congressional Research Service DeFi Overview

As we shared in the last DeFi Debrief, on March 16, 2026, the Congressional Research Service (CRS) released a report entitled “An Overview of Decentralized Finance (DeFi).” The report provides Congress with a high-level overview of DeFi, focusing on two primary areas: defining DeFi and regulatory policy considerations.

This week, the DEF team is doing the DeFi Debrief a little bit differently, focusing the CRS report’s findings and potential implications:

Defining DeFi

The report outlines the core components of the DeFi ecosystem, including cryptocurrencies, smart contracts, and oracles. It describes common DeFi applications, such as staking and validation, mixers, decentralized exchanges (DEXs), lending protocols, and yield farming. The report also compares DeFi systems with traditional financial (TradFi) infrastructure, highlighting key differences in design and functionality. For a more detailed analysis of DeFi use cases, see DEF’s one-pager here.

Regulatory Policy Issues

The report examines potential regulatory approaches and broader policy implications for DeFi, highlighting both the technological innovation enabled by decentralized systems and the regulatory challenges associated with it. Key concerns include: (1) legal uncertainty, (2) potential regulatory arbitrage, and (3) compliance considerations.

With Congress considering legislation on digital asset market structure, this CRS report may help shape how policymakers understand and approach the DeFi ecosystem. Overall, the report is a balanced, technical analysis that frames DeFi as both a technological innovation (enabling automated, permissionless financial services), while also highlighting how its disintermediated architecture and evolving legal status make it a unique regulatory challenge.

However, a few aspects of the report could benefit from additional clarification.

• First, the report adopts several ambiguous definitions for core concepts in the DeFi ecosystem. For example, it states that “[DeFi] generally refers to the use of cryptocurrency and certain programs that create a financial system with little, if any, use for intermediaries” (p. 1). This statement could benefit from additional nuance. By definition, DeFi protocols are designed to operate without intermediaries *entirely*. In practice, users execute transactions on DeFi protocols through public smart contracts deployed on permissionless blockchains rather than through centralized institutions such as banks, brokers, or exchanges.
• The report also raises concerns about illicit finance risks in DeFi without context related to risks better characterized as cybersecurity risks or risks inherent in all finance. The report says that onchain transactions “may make it easier to conduct and conceal illicit financial activity” and notes that tools such as “mixers or blockchain analytics have developed to obscure and track transactions” (p. 2). Further, the report notes that “whether and how Congress decides to legislate DeFi could have implications for how much illicit financial activity occurs on DeFi platforms” (p. 17) and continue to emphasize that the DeFi space carries a high risk of illicit finance activity (pp. 19–20).

However, as illustrated in a previous DEF blog, while illicit activity does occur in the digital asset ecosystem, it represents only a small fraction of overall financial crime. For example, both the U.S. Department of the Treasury’s 2024 National Risk Assessment and the July 2025 President’s Working Group Report find that most illicit finance risks continue to occur within the traditional financial system. Moreover, as explained in detail in our previous paper, the current Bank Secrecy Act (BSA) is broken and applying one-size-fits-all anti-money laundering (AML) requirements to DeFi participants would be technically infeasible and inefficient.

You can read the full CRS report here.