A DeFi misunderstood by regulators – The Securities and Exchange Commission (DRY) has already gone on the offensive, by initiating legal actions against decentralized finance companies (DeFi). In addition, the US regulator still does not seem willing to adopt regulations in accordance with the characteristics of DeFi.

The SEC sticks to its positions on DeFi

For the exit at all first issue of The International Journal of Blockchain Law, the commissioner of the SEC, Caroline crenshaw, lent itself to the exercise of writing the first article. In this article titled “DEFI RISKS, REGULATIONS, AND OPPORTUNITIES”, Crenshaw gives his opinion on decentralized finance, thus indirectly that of the SEC.

However, it is regrettable that the Commissioner is interested any further of risks and the need to to regulate this area, rather than the real opportunities of DeFi. Indeed, in this article, Crenshaw expressed his conviction that decentralized finance must solve the issues of transparency and anonymity in order to comply with SEC regulations.

First, with regard to transparency, she stressed that this is not one of the characteristics of DeFi. This lack of transparency would be an obstacle to the control missions carried out by the SEC. Then, concerning theanonymity she noted that this is a factor facilitating the market manipulation. Indeed, with pseudonyms, it is difficult to detect the use of bots or the realization of collusive transactions. However, one of the missions of the SEC is precisely to fight against the manipulation of the financial markets.

“Without an effective method of determining the true identity of traders, or smart contract owners, it is very difficult to determine whether asset prices and trading volumes reflect organic interest or are the result of manipulation ( …) “

Extract from Caroline Crenshaw’s article

In addition, she suggested the idea that DeFi project leaders collaborate with the SEC in order to find solutions to these problems and thus reach a compromise in accordance with the regulations of the SEC.

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DeFi definitely in the sights of regulators

Since 2020, DeFi has experienced a strong enthusiasm from investors. The growth of the DeFi sector was moreover amplified during the year 2021. It is therefore easy to understand the reasons why the SEC and other regulators are looking into the subject. However, the financial policeman does not seem not having adopted la good approach to regulate this activity, since it suggests to to delete, or render inoperative all the main characteristics of decentralized finance.

Moreover, as the author of the third article of the journal rightly points out:

“If the formation of a digital asset market is actively hampered, if not discouraged, by regulators at all stages of the capital formation process, how is a viable market supposed to emerge? At the very least, the effective integration of digital asset securities into the national market system is not for tomorrow. And even then, it will probably be limited to a small number of projects. “

Eric W. Hess

Caroline Crenshaw thus joins the long list of detractors of DeFi. Like Gary Gensler and Elizabeth Warren, it seems to favor strict regulation, drawing from the standards of traditional finance. Therefore, it is worth asking seriously whether these people really understood the ins and outs of this sector.

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