DeFi Projects Are Not Exempt From Regulations, Says SEC Chairman

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SEC Chairman, Gary Gensler, calls out ‘DeFi’ projects in the crypto space, saying they aren’t exempt from regulations. 

DeFi services are the talk of the town in the crypto space. The lack of a middle man to impose rules and fees prompts many to look into DeFi exchanges. 

At the moment these types of networks currently aren’t subject to any regulations in the U.S. However, in an interview on Wednesday, Gensler said they are not “immune from oversight.” Gensler pointed out there are some features of  peer-to-peer trading platforms that function in ways which need regulation.

On the other hand, DeFi developers say the way these projects are constructed leaves no central entity in charge. Their argument is this kind of decentralization needs no SEC oversight. 

Nonetheless, Gensler looks at the rewards participants are able to reap, digital tokens for example, which could become an activity that needs regulation. He said this despite the decentralization. 

The SEC head narrowed in on specific services of some DeFi platforms. He said, “there’s still a core group of folks that are not only writing the software, like the open source software, but they often have governance and fees. There’s some incentive structure for those promoters and sponsors in the middle of this.”

Earlier this month the SEC brought its first charges against the DeFi firm Blockchain Credit Partners and its two creators. The two men misled investors  and sold $30 million in unregistered securities, primarily fractions of income-generating car loans, via smart contracts. 

Gensler called the term DeFi “a bit of a misnomer.” The Chairman said, although these platforms promoted decentralization, some aspects are still “highly centralized.” 

SEC Continues Crypto Talks

Gensler’s recent comments come on the coattails of potentially industry rattling regulations. Earlier this month, the Senate passed a bipartisan bill, which included a broad definition of  ‘broker’ in a set of crypto-targeted regulations. If passed through the House, the crypto industry could be turned on its head. 

Meanwhile, Gensler and many of his contemporaries seem to be in favor of a more controlled decentralized space. The SEC head called on Senator Elizabeth Warren, in the midst of regulatory talks. The democratic Senator has been advocating for “crypto cops” in recent weeks. 

The crypto space remains on edge as regulations pass through U.S. regulatory bodies. Many believe if the bill passes as is, it could drastically hurt future innovation of the space. 

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Savannah Fortis is a multimedia journalist covering stories at the intersection culture, international relations, and technology. Through her travels she was introduced to the crypto-community back in 2017 and has been interacting with the space since.

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