Gensler Warns of Tighter Regulation for DeFi and Stablecoins

The U.S. Securities and Exchange Commission (SEC) is considering a tighter oversight regime to protect investors in the crypto markets. The agency’s head, Gary Gensler, said at the Aspen Security Forum in 2021.

“While I am neutral about this technology, even intrigued — I’ve spent three years teaching a course related to it, immersing myself in it — I do not maintain neutrality on investor protection. If someone wants to speculate, that’s their choice, but as a state we must protect these investors from fraud,” said the SEC chair.

In Gensler’s view, “thousands” of digital assets offered on the market are unregistered securities that actually should meet SEC requirements.

He stressed that blockchain technology and the instruments built on it can spur the financial sector and others, but only with thoughtful regulation. According to him, despite the recent request to expand the agency’s powers in this regard, he has ample levers to press the industry.

Gensler did not say whether the SEC plans to take any action in the near term. He explained that the agency’s agenda includes 49 questions, many of which have higher priority.

The official also said that there are at least seven initiatives within the agency targeting different segments of the digital-asset space: on ICO, trading platforms, lending services, DeFi, stablecoins, custodians, as well as ETFs and other crypto funds.

“I have asked our staff to use every power of the agency wherever possible,” he noted.

Gensler reiterated that regulating cryptocurrency exchanges is the government’s easiest way to bring order to the new market. The SEC chief also expressed concern about the development of decentralized lending services and other DeFi platforms, which may come under heightened regulator scrutiny.

The official commented on the possibility of approving a Bitcoin ETF — this move is awaited by many participants in the crypto industry, including Coinbase.

According to Gensler, an SEC-compliant exchange-traded fund based on digital gold would provide the necessary investor protection. He added that the agency is open to considering proposals to launch Bitcoin futures ETFs on the Chicago Mercantile Exchange (CME).

“In light of these important protective measures, I look forward to staff reviewing such requests, especially if they are limited to Bitcoin futures traded on the CME,” he explained.

The SEC chair noted that most of the Bitcoin ETF applications under review were structured under 1930s-era laws. However, over the next decade, the United States enacted several important investor-protection laws, Gensler noted.

“At present, investors in the crypto industry are not adequately protected. To be honest, this resembles the Wild West,” added the head of the SEC.

While the SEC delays the review of applications to launch Bitcoin ETFs, a number of countries have already approved cryptocurrency-based ETFs. Among them are Canada and Brazil.

In July, SEC Commissioner Hester Peirce called the regulator’s requirements for Bitcoin ETFs inflated and expressed dissatisfaction with the agency’s policy on this matter.

Gensler also agreed with his predecessor Jay Clayton that all ICO projects are securities.

“Buyers of these tokens expect to profit, and a small group of technical experts and entrepreneurs are developing these projects. I believe that today in the cryptocurrency market many tokens may be unregistered securities without the need to disclose information,” said the current head of the SEC.

In his words, the absence of market oversight leaves room for manipulation of stock prices and makes investors vulnerable.

Recall that in April 2021 the U.S. Senate approved Gary Gensler’s nomination as SEC chair. Under Barack Obama’s administration he served as chair of the CFTC and earned a reputation for a tough regulatory stance.

Earlier, the official warned issuers of stock-based tokens about the need to report to the SEC.

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