Is Gensler’s Stance the Right Move for the US Crypto Market?
The SEC Chair, Gary Gensler, spoke at the Aspen Security Forum on August 3rd. Here, he discussed multiple areas in crypto including, lending, crypto-ETFs, and stablecoins. He also focused specifically on DeFi, making it clear that this industry will be receiving more regulatory scrutiny.
It comes as no surprise the SEC is keeping a watchful eye on this, as Gensler himself has voiced concerns in the past. However, it is worth questioning the nature of those regulations, and whether they will truly benefit the industry as a whole.
DeFi, Lending, and Stablecoins Under Fire
Gensler did not outline any specific regulatory actions that will take place, but he did give us an overview of which areas the SEC urgently aims to tackle. The Chair took aim at DeFi, and in particular DeFi lending, saying:
“In my view, the legislative priority should center on crypto trading, lending, and DeFi platforms. Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending.”
Earlier in his speech, he also said:
“The world of crypto finance now has platforms where people can trade tokens and other venues where people can lend tokens. I believe these platforms not only can implicate the securities laws; some platforms also can implicate the commodities laws and the banking laws.
A typical [DeFi] trading platform has more than 50 tokens on it. In fact, many have well in excess of 100 tokens. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50 or 100 tokens, any given platform has zero securities.”
The stablecoin industry, an area US Secretary of the Treasury Janet Yellen has been demanding greater regulations for, was also discussed. The SEC Chair deemed stablecoins highly problematic and lacking “full investor protections”, saying:
“[T]he use of stablecoins on [trading] platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like. This affects our national security, too.”
Is Gensler Right to Seek Regulation?
The nature and tone of Gensler’s speech give the impression the SEC will take a strict approach to crypto regulations. The Chair called himself “technology-neutral”, but added that he is “anything but public policy-neutral” stating:
“new technologies come along, we need to be sure we’re achieving our core public policy goals… In finance, that’s about protecting investors and consumers, guarding against illicit activity, and ensuring financial stability”.
But how strict should these regulations be? Many in the crypto-sphere are worried that if regulations are too tough, they will impede on innovation and dissuade developers from building projects within the country. There is also the looming question of how exactly DeFi regulations could exist, as DeFi protocols are built to be autonomous and unbound to any geographical location– this was recently discussed at the Senate Committee hearing on cryptocurrency in late-July.
For digital asset supporters, one of the most recommended paths forward is a “light-touch” approach, similar to how the internet is often handled. The early days of the internet heavily benefited from this style of regulation, leading to competition fostering greater developments in the technology. This approach may also be suitable for cryptocurrency, with Joko Widodo, President of Indonesia, supporting this style of regulation for all areas in FinTech.
A “light-touch” approach does not mean the SEC would be hands-off, but rather it means they would intervene specifically when there were clear and obvious malpractices within the crypto industry. In effect, they would still be watchful of all crypto activity, but at the same time recognize that innovation needs room to breathe, and tight regulations limit progress and squeeze the competition to other countries.
Considering the US economy is currently suffering, this topic couldn’t come at a more important time. If the SEC acts too harshly, they could very easily hinder the country’s crypto-support, and therefore harm the US financial sector overall. The SEC is sure to be closely monitored by the crypto community, as its next moves could have huge implications for the future.
How do you think the crypto industry should be regulated? Let us know in the comments below.