US SEC Boss Gary Gensler Calls to Regulate DeFi Projects

In an interview with the Wall Street Journal on August 19, the US Securities and Exchange Commission chairman Gary Gensler warned that decentralized finance (DeFi) platforms are not immune to oversight by the market regulator.

Gensler went further and said that DeFi projects have features that make them look like the type of entities regulated by the SEC. The SEC chair clarified that DeFi projects that reward participants with valuable digital tokens similar incentives could enter territory subject to the SEC regulation. 

In short, Gensler hinted that the regulator could start regulating DeFi platforms.

In the past, the SEC has been targeting centrally-operated crypto firms that have sold cryptocurrencies, or run exchanges, investment funds, or ICOs.

Despite DeFi platforms being decentralized, with no central entity in charge, Gensler has claimed that such platforms have an organized and transparent set of developers governing each project.

He pointed to individuals involved in the DeFi industry as “promoters” and “sponsors.”

“There’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees. There’s some incentive structure for those promoters and sponsors in the middle of this.” 

The SEC chairman argued that the term of DeFi is not necessarily accurate, calling it “a bit of a misnomer”. “These platforms facilitate something that might be decentralized in some aspects but highly centralized in other aspects,” Gensler said.

More Investor Protections Needed

This is not the first time that Gary Gensler has called for tougher regulation on DeFi. In the past, the SEC chairman suggested that the decentralized finance landscape could be in the business of selling unregistered securities.

On August 3, Gensler spoke at the Aspen Security Forum, where he said that thousands of crypto assets or tokens are operating as unregistered securities. The SEC chair admitted that currently, there is no adequate investor protection in cryptocurrency.

During that time, Gensler stated publicly that he wants more regulation for exchanges and seeks to cooperate with Congress on that issue. He expressed the desire for Congress to grant the SEC additional powers and resources as it expands its oversight of the cryptocurrency. His speech focused on key areas like tokens classified as securities, stablecoins, DeFi platforms, and financial products tied to crypto, such as exchange-traded funds.

 Gensler joined senators like Elizabeth Warren in calling for more robust consumer protections within the crypto industry.