US Securities and Exchange Commission (SEC) Commissioner Esther Pearce has warned of the dangers of “shadow centralization” in the decentralized finance (DeFi) sector.
Speaking with DeFiWatch founder Chris Blec, Hester Pierce said that decentralized organizations and DeFi are new concepts for regulators. According to her, “Having a P2P system without central intermediaries is very different from what we usually deal with.”
“If you want to be decentralized, you have to strive for true decentralization. This will put you in a different category in terms of the regulator, because we have not dealt with such projects before. If regulators can find a centralized piece or group of people that they can grab onto, they will. Therefore, I think that creators need to be careful and think carefully about the structure of their projects, as it will matter in the future, ”said Esther Pierce.
Black asked Peirce’s opinion on the best way to develop decentralized protocols. He clarified whether the founders should strive to achieve the same level of decentralization as Bitcoin, or start developing “very carefully and then think about regulation” to avoid breaking the law. The Commissioner replied that the current rules were designed in such a way that “any legal or natural person involved in the financial industry is likely to be subject to at least one regulatory framework.”
Pearce urged the creators of the DeFi protocols, who believe they are engaged in new activities outside the scope of the law, to reach out to regulators and “find out if there is an alternative way to comply with the legal requirements.”
“If you want to prove yourself different from centralized or commercial finance, then you have to show that you are doing something radically new. From my point of view, this requires decentralization. If trust really comes from code, this is very different from a situation where trust comes from one company or group of people, ”Pearce said.
The Commissioner also noted the prevalence of “shadow centralization” in the DeFi sector, where opaque governance structures can lead to centralized control of the protocol. However, Pierce urged regulators to adapt to decentralized innovation and said they “need to better understand how to work with innovators.”
“This is one of the reasons our financial system is so concentrated,” she continued. “Because the only people who can afford to wait to get permission are people who already have a lot of money and good lawyers.”
When asked how the situation would have turned out for Satoshi Nakamoto if he had approached the SEC before the launch of Bitcoin, Pierce replied:
“It’s 2021, it’s very likely that Satoshi would still be trying to get a letter from the regulator with a guarantee of inaction.”
This week, US regulators have been actively discussing the oversight of the cryptocurrency industry. While the chairman of the US Securities and Exchange Commission (SEC) argues that the SEC needs more power to regulate the cryptocurrency markets, the former CFTC chairman believes the matter does not fall under the jurisdiction of the SEC at all.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
