The stance of the US Securities and Exchange Commission (SEC) regarding digital assets reflects someone’s political agenda and hinders innovation as well as consumer protection. This view is shared by Adam Cochran, a partner at venture firm Cinneamhain Ventures.
1/21
At this point I’m convinced that the SEC’s current regulatory stance on crypto is more someone’s personal political agenda.
Highly technical, educated people, informed on this space cannot reach the conclusion that defi platforms can simply ‘come in and register’
— Adam Cochran (@adamscochran) September 16, 2021
The specialist grounded his arguments in the situation surrounding Coinbase-SEC conflict and regulator questions toward the decentralised exchange Uniswap. Regarding the latter, he emphasised that DeFi-platform cannot simply “come in and register.”
Earlier, the head of the Commission, Gary Gensler, stated that expects similar actions from the DEX and centralised exchanges.
The expert noted that Gensler even remarked that securities laws are clear and simple for the industry, and that Congress should clarify them.
4/21
He even seemed to suggest both that securities laws are clear and simple for the crypto market, while also saying congress needs additional laws to clarify them. https://t.co/7NBAZi13TF
— Adam Cochran (@adamscochran) September 16, 2021
Cochran compared the SEC chair’s actions with proposals for regulatory holidays for crypto startups by Commissioner Hester Peirce and with the Republican Don Beyer’s initiative to establish guidelines for digital assets.
6/21
We’ve also seen folks like Rep. Beyer introduce proposed legislation that would create specific guidelines for digital assets, and while not perfect, its a big step forward: https://t.co/hw7nJ6R07L
— Adam Cochran (@adamscochran) September 16, 2021
But the current rhetoric from the Commission boils down to three theses:
- we will not tell you which tokens are securities;
- each platform hosts a multitude of assets;
- some of them may statistically end up in that status;
Two possible ways out, according to the agency, are:
- enter into dialogue with us (Coinbase did, and instead of a conversation is facing legal action);
- simply register (technologically and legally impossible for a protocol. There are no rules indicating such necessity).
8/21
Their solution is:
-Come talk to us. (Coinbase did and instead of conversation is getting legal action)
-Simply register (Technologically and legally impossible for a protocol + no burden showing its necessary)
— Adam Cochran (@adamscochran) September 16, 2021
A registered securities platform would need to accommodate a transfer agent and a clearing-and-settlement system.
Both would act as centralised intermediaries between the exchange and the customer.
9/21
A registered securities platform needs things like:
-A Transfer Agent
-A Clearing HouseBoth are centralised, custodial agents who sit between an exchange and customer.
— Adam Cochran (@adamscochran) September 16, 2021
The operation of the first is essentially about registering property rights, keeping records, distributing dividends and cancelling/issuing various share certificates.
All this DeFi changes thanks to the ERC-20 standard tokens and a dashboard that pulls data from the blockchain.
The clearing-and-settlement system checks and finalises the transaction, resembling an escrow agent.
In Cochran’s view, both elements are utterly unnecessary in blockchain land due to instantaneous settlement.
11/21
A clearinghouse validates and finalizes the transaction, they basically settle accounts and payments like an escrow agent.
Something that is entirely unnecessary in blockchain land because of T-Instant settlement.
— Adam Cochran (@adamscochran) September 16, 2021
Adding a transfer agent and a clearing-and-settlement system would merely introduce centralised risk to the process and make it riskier for participants in DeFi, the expert contends.
Cochran stressed that regulators at the SEC did not demand registration from DEXs.
The Cinneamhain partner cited the Commission’s work in recent years. In enforcement actions, the regulator has repeatedly treated DEXs as “securities platforms” and “platforms with securities.”
14/21
In the years of enforcements the SEC has made against crypto not once has it been against a decentralized platform for ‘being a securities platform’ or ‘having securities on its platform.https://t.co/flRFyw6nT3
— Adam Cochran (@adamscochran) September 16, 2021
All of their actions have been directed at fraud, ICOs, centralised platforms and practices marketed as investments (which is fair enough), Cochran explained.
The only DeFi platform on that list was DMM. But it wasn’t decentralised and, evidently, dealt in investment contracts, the specialist recalled.
15/21
All of their actions have been against frauds, ICOs, centralized platforms, and things expressly marketed as investments (which is all fair)
The only «DeFi» platform we saw hit with action was DMM which was not decentralized and was expressly dealing in security products.
— Adam Cochran (@adamscochran) September 16, 2021
In the Coinbase confrontation, Cochran noted, the SEC even showed the exchange a list of securities. Instead regulators sent a Wells Notice [a letter informing a company of possible violations of securities laws].
«If Coinbase has a “security” why not point them out?», Cochran asked.
In the Uniswap situation, the expert believes the SEC is more interested in “how the team markets the product” than the product itself.
“If the SEC statements were accurate, this wouldn’t matter. The platform is in violation regardless of marketing?”, Cochran asked.
17/21
With Uniswap, the SEC seems more interested «how the team marketed the product» than what the product does.
Which if the SEC’s statements were accurate, wouldn’t matter because surely the platform would be a violation regardless of marketing?https://t.co/8rjx40KDPI
— Adam Cochran (@adamscochran) September 16, 2021
In conclusion, the Cinneamhain partner stressed the need to safeguard consumers and build an inclusive financial system. That is what crypto is built on.
He lamented that the SEC is “slowing progress,” while regulators in other countries engage with the industry. Instead of working with industry participants, officials engage in intimidation. Cochran urged all to speak with a united front.
19/21
But, while regulators all over the world are engaging with crypto, the SEC seems to be back peddling.
Choosing to pursue a chilling effect on white knight rhetoric, rather than work with the industry to make it safer.
— Adam Cochran (@adamscochran) September 16, 2021
As noted earlier, Ripple chief Brad Garlinghouse, Coin Center director Jerry Brito, and Kraken CEO Jesse Powell supported Coinbase in its clash with the SEC.
Earlier, BlockFi CEO Zac Prince expressed confidence that crypto-lending services will survive despite state-level regulatory pressure.
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