Friday, June 9, 2023

SEC Statement on DeFi Regulations, Opportunities and Risks

The Securities and Exchange Commission of the U.S. has brought out a report on the risk, regulations, and opportunities within the DeFi ecosystem. Caroline Crenshaw, one of the five SEC commissioners, has brought out a statement on the risks, regulations, and opportunities in decentralized finance. Crenshaw published the ‘statement’ on November 9. In the statement, she advised DeFi platforms to contact the SEC.

Also, in the statement, Crenshaw says that crypto is now part of the everyday language. The word crypto is being used in the news, on social media and around investment portfolios. In the report, the SEC tries to explain the regulatory status of decentralized finance in the United States. The report says that many things in decentralized Finance look like those in the traditional financial marketplace. The SEC partnered with AnChain.Al, a blockchain analytics firm to observe the DeFi space.

Risk and reward in DeFi

The commissioner said that DeFi has structural limits because it is unregulated. Crenshaw added that the Securities and Exchange Commission is one of the departments that have jurisdiction over decentralized finance. Nevertheless, no DeFi platform needed to register with the regulator. Because of that, users are not protected by any legal framework, like with the traditional financial markets. Crenshaw also asked DeFi platforms to reach out to the Commission’s ‘’FinHub’’ for advice about DeFi regulations. Crenshaw also said that the commission’s FinHub has never refused a meeting. According to the commissioner, the help of FinHub is very meaningful. The regulator would like more DeFi projects to comply voluntarily with regulations.

According to Crenshaw, there are two major structural hurdles; Transparency and pseudonymity. The commissioner says that there is a lack of transparency. She speaks about a ‘two-tier market’ where experienced investors and insiders make huge profits and retail investors take more risks. The retail investors get worse pricing and because of that they are less likely to succeed. According to the commissioner, this has happened with multiple projects that have had major venture capital investments. A big consequence is that because of that, these projects are now governed by ‘whales’ which hold the most percentage of the tokens.

Donat - CryptoCoinia
Copywriter at CryptoCoinia.

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