Hester PeirceIn an exclusive interview with Cointelegraph, the commissioner of the US Securities and Exchange Commission said Decentralized funding, also known as DeFi, has presented the SEC with new challenges.
Peirce, Nicknamed “Crypto Mom” for her interest in innovating digital assetsmentioned that the rapidly growing DeFi sector has created a number of unresolved legal issues:
“DeFi has challenged the SEC in a similar way to the 2017 ICO boom. What’s different here is that the pace of DeFi has been much faster. I also think legal issues are harder to resolve at DeFi -Page. “
Although Peirce shared that regulations for DeFi projects may be outside the purview of the SEC, Some of these projects are likely to affect securities laws. For Peirce’s point, John WhelanThe CEO of Santander Bank and President of the Enterprise Ethereum Alliance told Cointelegraph From a financial perspective, DeFi has the potential to enable autonomous programmable digital securities in the future.
However, this remains a long-term goal Most DeFi offerings are made up of tokens that lack liquidity and that are used to fund blockchain projects. Nevertheless, Peirce advised those involved in the DeFi space operation to exercise caution. While chatting with Whelan for the online conference “Ethereum in the Enterprise – Asia Pacific”, Peirce mentioned that the crypto community should be careful when creating DeFi projects:
“I warn people to think about what they’re building and think about if it looks like traditional security. If you do, speak to the SEC because individuals can get into trouble if they develop any of these things. That would be my advice. “
DeFi challenges the SEC by eliminating intermediaries
In addition to the legal obstacles Peirce noted that the goal of decentralized funding is to weed out outside intermediaries like banks and exchanges.
But still, Peirce mentioned that the SEC depends on these intermediaries. “Our entire set of rules is based on the idea that you have these intermediaries. In order to, If we remove them from the picture, our work as a regulator becomes very difficult“said.
This is not just a challenge for the SEC. Rather, the lack of intermediaries in DeFi may be responsible for the numerous attacks and fraudulent activities in space. A report from the Blockchain Intelligence Company CipherTrace shows, that 45% of all cryptocurrency attacks in the first half of 2020 were against DeFi projects. In addition, intermediaries must be present so that institutions and companies can use DeFi applications.
However, Peirce referred to the idea that The lack of innovation in the financial industry is partly due to regulatory obstacles. In his conversation with Whelan Peirce stated that regulatory barriers protect traditional financial institutions from competition, something she’s trying to change. “I want to see what happens when you have a really competitive field,” said Peirce.
Eth 2.0 brings back the case for the Safe Harbor Framework
DeFi concerns aside, Pierce seems optimistic about that Latest release of the Ethereum 2.0 Beacon Chainwhich is sure to spawn new projects within the Ethereum community.
Given the new developments in the Ethereum network, Peirce explained this The proposed Safe Harbor framework for blockchain projects is likely to be further developed. He first announced the proposal in August 2019 and explained it in more detail at the International Blockchain Congress in Chicago in February. In a nutshell, The Safe Harbor proposal would give network developers three years to build decentralized projects without having to worry about legal action from the SECas long as they meet a basic reporting standard at the beginning of this period.
According to Pierce, he is currently working on version 2.0 of the Safe Harbor framework. but he doesn’t expect the proposal to be ready anytime soon. The commissioner noted that “it may be slower than the Ethereum 2.0 launch”.
Although this is the case Pierce admitted that Ethereum 2.0 is evidence that there is still a case for the Safe Harbor framework.. In addition, he shared hopes that the new SEC chairman would like to work on issues related to digital asset innovation.
Naturally, Ethereum 2.0 could also present new challenges for the SEC. Whelan noted that from a technical perspective, there is a move away from a probabilistic agreement of a consensus mechanism for demonstrating work to a deterministic agreement for demonstrating deployment could solve technical challenges while asking new legal questions to the SEC. Whelan said:
“Ethereum 2.0 has an integrated billing purpose, which means that the blockchain update is final after a while and can no longer be revised. However, this speaks for legal problems. “
Peirce said he had never considered that before. “I think that’s a great point. We want the moment things are done, of course, but I need to think more about what that could mean. “he commented.
Continue with a Bitcoin or Ether-based exchange product
With the rise of DeFi, who quickly took over the crypto space, Peirce mentioned that in the future The SEC should provide guidelines for decentralized funding::
“We have initiated compliance measures and I believe that we will continue the compliance measures. In my view, the main concern is that we have to prosecute fraud, that is clear. We have to go after people who are breaking the rules, but I think until we develop a framework that provides guidance, it is really problematic to take an enforcement approach first. “
Another “pressing problem” that Peirce noted is the need to provide custody facilities to brokers and investment advisors. This is important as the SEC and the financial industry regulator filed a complaint in July 2019 that stated this A cryptocurrency management service may not be able to provide sufficient evidence that it actually controls the assets it claims.
What’s even more interesting is that the SEC may be promoting an exchange product based on Bitcoin (BTC) or Ether (ETH). While Peirce mentioned this, also noted that progress was disappointing.