Is US Crypto Regulation Favoring CeFi Over DeFi?

Once heralded as a disruptive alternative to traditional finance, the DeFi (decentralized finance) sector now faces competition from CeFi (centralized finance)—a hybrid model that blends crypto’s financial rewards with the familiar convenience of centralized platforms.

While much is said about the support of the Trump Administration for the crypto sector in general, tech attorney Alexander Urbelis and other experts believe that the U.S. regulators favor CeFi over DeFi.

But Urbelis warns that the U.S. regulators’ leaning toward facilitating centralized crypto businesses creates dangers. His concerns were outlined in the Unchained media article on Sept. 17.

Generally, U.S. regulators are more focused on platforms and products that comply with anti-money laundering (AML) laws and collect user data.

What’s the difference between DeFi and CeFi?

While DeFi and CeFi platforms offer similar services—like cryptocurrency exchange and yield farming—the key difference lies in control.

Blockchain Association co-founder Connor Spelliscy outlines seven principles of decentralization, developed with input from over 40 industry experts:

• Open: The source code should be available to the public.
• Autonomous: The network should be controlled by the encoded rules without human intervention.
• Permissionless: No one can restrict the use of the network for others unilaterally.
• Non-Custodial: The platform doesn’t store private keys of its users. Only users themselves are in charge of keeping their keys and private data.
• Distributed: No person or group of people can perform changes to the network unilaterally, nor can they control large portions of the token supply.
• Credibly Neutral: The code doesn’t provide anyone with the network privileges over other users.
• Economically Independent: The network mechanisms facilitate the token value growth.

These principles stand in stark contrast to the approach of U.S. policymakers, particularly in the CLARITY Act, which may allow companies to self-certify as decentralized.

This could lead to discrepancies in how decentralization is defined, allowing centralized platforms to exploit the benefits meant for true DeFi projects.

Spelliscy warns that without clear definitions, opportunistic companies may pass themselves off as DeFi while enjoying the regulatory advantages intended for innovators.

Does the U.S. crypto regulation favor CeFi over DeFi?

The CLARITY Act aims to define the legal status of cryptocurrencies, but it’s still unclear whether decentralized projects will thrive under the current administration.

While regulators have paused legal actions against major CeFi players like Circle, Binance, and Coinbase, they’ve taken a harsher stance on DeFi developers such as those behind Samourai Wallet and Tornado Cash, who face prison for creating privacy tools.

The passage of the GENIUS Act in 2025, which sets the framework for stablecoin issuers, is seen as a step forward. However, critics argue it only lays the groundwork for further regulation. While stablecoins serve as a key entry point to DeFi, the U.S. government’s oversight—requiring issuers to obtain permission and collect user data—undermines decentralization.

In sum, the Trump administration doesn’t actively target decentralized platforms, but it clearly seems to favor CeFi over DeFi.