US Securities and Exchange Commission (SEC) Commissioner Caroline Crenshaw has called on DeFi projects to work together to address transparency and anonymity issues by following existing regulations.
Caroline Crenshaw, in her article “The Risks, Rules and Opportunities of DeFi,” posted in The International Journal of Blockchain Law, outlined the benefits and risks of DeFi. The Commissioner urged the community to address transparency and anonymity issues by following SEC rules.
“In the brave new world of DeFi, there has yet been widespread acceptance of regulatory frameworks that provide important protections in other markets,” said Crenshaw.
She stressed that the lack of regulation of DeFi “creates a two-tier market in which professional investors and insiders reap huge profits.” Most DeFi protocols are open source and all transactions are logged online, but retail investors do not have the ability to conduct quality audits to make an informed investment decision.
Thus, retail investors are at a disadvantage compared to institutional investors who have the resources to conduct audits. According to Crenshaw, “it is unwise to build a financial system that requires all investors to understand the intricacies of the protocol and code.”
Crenshaw also expressed concern about possible market manipulation. She claims that when participants act anonymously, they can manipulate the market with bots. This carries risks for investors as common signals such as trading volumes become unreliable. Therefore, the SEC must decide how DeFi’s anonymity can be regulated. Crenshaw emphasized that investors go to DeFi not for anonymity, but for greater profits.
The SEC’s interest in the DeFi market increases as it grows. According to the analytical resource Defi Llama, already in early November, the volume of crypto assets blocked in DeFi protocols reached $ 256.95 billion, an increase of more than 25%.
The stablecoin market, which is also showing growth, is attracting no less attention from regulators. Recently, the US President’s Working Group on Financial Markets called for increased supervision of stablecoins. In October, it was reported that the SEC had received the authority to regulate the stablecoin market.
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