Gensler: DeFi decentralisation does not immunise against SEC oversight

Projects in the DeFi space may be regulated by supervisory authorities, regardless of the degree of their decentralisation. This was stated by Gary Gensler, the chair of the US Securities and Exchange Commission (SEC), in an interview with The Wall Street Journal.

Gensler described the term DeFi as misnomer, since existing platforms are “decentralised in some aspects, but highly centralised in others”. In particular, he noted projects that incentivise participants with digital tokens or in a similar fashion.

“There remains a core of people who not only develop software, as in open-source, but often govern and charge fees. There is a defined incentive structure for these promoters and sponsors,” said the head of the agency.

According to Gensler, certain DeFi projects have features that make them resemble the types of organisations regulated by the SEC. For example, some can be likened to peer-to-peer lending platforms.

The Block Research analyst Larry Cermak argues that if the SEC decides to pursue the founders and developers of DeFi projects, they will leave the United States or work on anonymous projects.

If they actually try to enforce this and go after the devs and founders, it will just push all the teams to move outside of the U.S. permanently and encourage more anon development. Not much more they can do honestly pic.twitter.com/pdEJorBudg

— Larry Cermak (@lawmaster) August 19, 2021

Earlier in August, Commissioner Hester Peirce argued that full decentralisation from launch is the only hope for DeFi projects to avoid financial regulation. She explained that regulators will try to seize on any element of centralisation they can find.

Gensler has not been shy about pushing for stronger oversight in DeFi. In August he said the agency is ready to introduce a tougher regime of oversight in the interests of protecting investors.

In the same month, the Commission said that the founders of the DeFi Money Market will pay more than $12 million to settle a dispute with it. According to the SEC, the case marked the first precedent of a DeFi project being held accountable. Peirce noted that it “was decentralised only in words”.

As noted, the SEC chief believes the agency needs additional powers and resources to regulate the digital-assets industry. He also highlighted as priorities for lawmakers the trading of cryptocurrencies, lending, and DeFi.

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