SEC’s proposed rule on exchanges could threaten DeFi, says Crypto Mom

Hester Peirce is a U.S. Securities and Exchange Commission commissioner, better known as Crypto Mom in the space, and warns that a proposed rule by the agency could have an impact on the regulation of decentralized finance firms.

Peirce stated in a Bloomberg Tuesday report that the SEC’s 654-page proposal to amend the definition of exchange as it is defined by the Securities Exchange Act of 1934, could have an impact on the digital asset space. According to reports, the SEC commissioner opposed the proposal being open for public comment. He stated that the text could be used to impose additional regulations on Decentralized Finance (or DeFi) firms.

Peirce stated that the proposal contains very broad language which, in conjunction with the chair’s apparent interest to regulate all things crypto, suggests it could be used for regulation of crypto platforms. “The proposal could be extended to more types of trading mechanism, including possibly DeFi protocols.”

The proposal’s text does not contain terms such as “digital asset”, cryptocurrency, or “decentralized financing” and instead focuses on “systems that allow the use of nonfirm trading interest and communication protocol to bring buyers and sellers together.” Gary Gensler, SEC chair, stated Jan. 26 that the rule change would “promote resilience and greater access to the Treasury market” through expanding regulations to include Treasury market platforms.

Related: Commissioner Peirce says DeFi will be a good regulatory test for the SEC

Cointelegraph reported Jan. 20 that Gensler’s enforcement of the SEC was “notably high”, between June 2021 and September 2021, just after Gensler’s confirmation by U.S. Senate. The SEC chair previously called projects in the DeFi area “highly centralized” in certain aspects and therefore subject to similar regulations to securities projects. This is purportedly what Peirce meant for Gensler’s “apparent interest” in regulating all things cryptocurrency.

The @SECgov mission is only possible if enforcement is a pillar. The policy framework, which includes the laws passed by Congress and the rules adopted by the Commission, is one pillar. You must also examine and enforce these laws & rules.
Gary Gensler (@GaryGensler), January 12, 2022

The proposed rule change will become available for public comment within 30 days of being published in the Federal Register if it is approved by the commissioners. The measure would then be up for vote by the regulators, who will take any feedback received into consideration.