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US SEC targets DeFi as it reopens 2022’s proposed crypto regulations

In this post:

  • United States SEC moves forth with crypto crackdown with a renewed focus on DeFi
  • SEC intends to seek public feedback, which will be incorporated into the final version of the proposal 30 days after the publication of the notice 
  • The DeFi market continues to perceive Gary Gensler as a crypto anti-hero

Despite the start of a crypto bull run, the SEC is stuck at a crypto crackdown. According to reports, the U.S. Securities and Exchange Commission (SEC) may target decentralized finance (DeFi) as it has reopened a proposal from last year that now explicitly targets platforms for crypto transactions as exchanges that must be regulated.

In January 2022, the SEC proposed expanding the definition of “exchange” to encompass a broader range of U.S. trading activity. In its proposed rulemaking at the time. The agency stated that certain entities engaged in trading were not regulated as exchanges, creating a “regulatory disparity.”

SEC comes after DeFi in a new crypto crackdown

According to reports, the SEC read comment letters from the crypto industry last year. They called the initial proposal an overreaching power grab that lacked sufficient clarity about its meaning. A divided commission approved a response to the criticism by a vote of 3-2 on Friday. 

A majority vote of the five-person commission is required to propose the plan to the agency. According to the agency, public feedback will be incorporated into the final version of the proposal 30 days after the publication of the notice of reopening in the Federal Register. In turn, this version must also receive majority commission approval.

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The revised proposal now uses more direct language to include DeFi in the expanding definition of regulated exchanges, and it provides cost estimates for the industry as a result of this change.

The original proposal did not mention crypto, but digital assets were widely viewed as being applicable. This ambiguity was criticized by Coinbase Global Inc., Circle Internet Financial, and one of the agency’s commissioners. The revised plan that will be presented on Friday clarifies the inclusion of digital asset trading.

Given how crypto trading platforms operate, many of them are currently not listed on exchanges. Investors in crypto markets should receive the same time-tested protections that securities laws provide in all other markets.

SEC Chairman Gary Gensler 

According to the SEC, the revised proposal will include a handful of digital asset firms whose platforms use specific communication protocols to match buyers and sellers. The agency asserts that its existing regulations already cover major exchanges that trade securities tokens.

Gary Gensler comes off as a crypto anti-hero

Gary Gensler has emerged as a controversial figure in the crypto world, often seen as a crypto anti-hero. Gensler has been known for his tough stance on cryptocurrencies and blockchain technology, drawing both admiration and criticism from various corners of the crypto community.

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Gensler’s regulatory approach to cryptocurrencies has raised eyebrows and sparked debates among crypto enthusiasts. One of the key reasons why Gensler is perceived as a crypto anti-hero is his relentless pursuit of increased regulation in the crypto space. Gensler has repeatedly expressed the need for stricter regulations to protect investors and ensure market integrity.

Gary Gensler asserts that most crypto platforms are already operating as unregistered securities exchanges, regardless of recent changes to the definition of an exchange. However, he and the SEC are preparing to reiterate the applicability of existing rules to platforms that trade crypto asset securities, including so-called ‘DeFi’ systems,” according to the fact sheet describing the changes. 

In a meeting on Friday, he stated, “Calling yourself a DeFi platform is not an excuse to violate the securities laws.”

According to reports, SEC officials briefing reporters prior to the meeting stated that the reopening and additional information were in response to a number of market participants requesting more information about the proposed amendments and how they would be applied to crypto assets and DeFi.

According to SEC representatives, the agency has no intention of defining DeFi in the rule. Nonetheless, the SEC will evaluate each situation based on the manner in which the activity is being conducted, including the presence of an intermediary and the specific services that the intermediary is providing. 

It has been a difficult month for DeFi in U.S. policy circles since the U.S. Treasury Department made it clear last week that DeFi services should be subject to anti-money laundering laws. They cited criminal and terrorist use of the platforms.

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