SEC Commissioner Warns Proposal May Threaten DeFi

A proposal by the SEC could give authorities sweeping powers over crypto exchanges, warns one Commissioner.

A recent proposal by the U.S. Securities and Exchange Commission adding oversight to systems for trading government securities could also give officials sweeping new powers over digital asset platforms, according to SEC Commissioner Hester Peirce.

Known for her relatively open approach to cryptocurrencies, Peirce said the 654-page plan released last week could threaten decentralized finance trading platforms in particular, despite not mentioning crypto once.

“The proposal includes very expansive language, which, together with the chair’s apparent interest in regulating all things crypto, suggests that it could be used to regulate crypto platforms,” Peirce said. “The proposal could reach more types of trading mechanisms, including potentially DeFi protocols.”

The SEC’s perspective

Meanwhile, the SEC insists that the intention of the rule proposal introduced on January 26 is to close the “regulatory gap.” According to the regulator, this had been created by market participants trading what it considers to be securities on unregistered platforms like exchanges. By forcing “communication protocol systems” to have to register, the agency believes the regulation offers a means of improving investor protections.

After the commission receives comments on the proposal, it will proceed to hold another vote before the regulations become final. Peirce was opposed to putting the regulation out for public comment, but was rebuffed by the other members, including Chair Gary Gensler.

While a spokesperson for Gensler declined to comment on Peirce’s concerns, he referred to the chair’s statement on the proposal. Gensler had said that the plan would extend existing regulations to more platforms which are actively trading Treasuries and other government securities. This would “promote resiliency and greater access in the Treasury market,” Gensler said at the time.

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