SEC Chairman Takes Aim at DeFi says not immune to oversight


On Wednesday, SEC Chairman, Gary Gensler said
that decentralized finance or DeFi projects are not immune to oversight and
rewarding valuable digital tokens to the participants by these projects will be
regulated.
DeFi aims at creating a new financial system
that is open to everyone and doesn't require intermediaries like the
traditional banking system. It relies mostly on cryptography, blockchain, and
smart contracts. Smart contracts are the key building blocks on DeFi.
SEC Chairman is now looking closely at DeFi
projects that reward participants with tokens or similar incentives, which
could be subjected to SEC regulations despite their decentralization. He is also
looking forward to help fill regulatory gaps with the help of US Congress by
legislating a solution on these projects.
Gensler said that "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."
He adds, “There’s some incentive structure
for those promoters and sponsors in the middle of this.”
Mr. Gensler, who joined the federal agency in
April, has doubled down on an effort to look into cryptocurrency projects.
Earlier this month, he warned against industry players working outside the
government regulations and promised a vigorous attack on illicit activities in
the crypto market. His hunt, which was started several years ago to look for
cryptocurrency projects that are offering investments with no regulations, is
still on.
“The American public is buying, selling, and
lending crypto on these trading, lending, and DeFi platforms, and there are
significant gaps in investor protection,” he said.
In an interview with Wall Street Journal, Mr.
Gensler termed DeFi as a “misnomer,” noting that these platforms might be
decentralized in some aspects but can be highly centralized in certain ways and
spoke more broadly about his stand.
DeFi app don’t require users to over hand their digital tokens to crypto exchange to trade and there is also no central authority deciding on the trade. The identity of traders using the platform is unknown, which raises an issue of hacking, money laundering etc as these projects don’t have safeguards against these illegal activities, which is also a major concern for the authorities.

Pavan A
CBW - External Analyst
INDIA