SEC Chair Gensler Hints at Incoming Decentralized Finance (DeFi) Regulation

Gensler speaks with WSJ and spreads more information around SEC’s motives around cryptocurrencies.

Gensler Talks the Talk

The head of the U.S. Securities and Exchange Commission (SEC) has indicated the regulatory body may be coming for Decentralized Finance (DeFi)

Chairman Gary Gensler, interviewed by Dave Michaels and Paul Kiernan of the Wall Street Journal on Thursday, August 19, scrutinized the various incentives common throughout DeFi, like governance. He even called ‘DeFi’ a misnomer in that many projects are still highly centralized around a core team and developers.

“Some decentralized finance projects, known as DeFi, have features that make them look like the types of entities the SEC oversees,” the Journal quoted Gensler. He continued: “There’s some incentive structure for those promoters and sponsors in the middle of this.”

He confirmed the SEC has set its eyes on the currently unregulated industry that is crypto and that projects with incentivized activity cross the line into the SEC’s jurisdiction. 

Gensler continued the bearish tone he carried at the Aspen Security Forum on August 3. Regulatory bodies in the United States have been pushing back against crypto for some time now.

From the fiasco involving the infrastructure bill language to the increasing scrutiny from Gensler, crypto is no longer an outsider in Washington DC. 


Importance of Language

Both the US Department of Treasury and the SEC have taken to the news to address concerns regarding crypto informally. The language that each regulatory body chooses should be of particular interest. The choice of language is potentially an internal struggle over-regulation. 

The Treasury’s apparent backroom approval to the broad ‘broker’ definition in the US infrastructure bill has led to much rigmarole and even a recent reversal on the original language. The back and forth play from the main monetary body in the United States is concerning. The body has also been tossing over how to allow the IRS taxing authority. 

The SEC has done no better by leaving a wake of trammeled interpretation. From the fumbling of the Ripple/XRP case to recent internal calls for clarity, SEC has not shown an educated response. The Chairman’s choice of the terms ‘promoters’ and ‘sponsors’ when referring to DeFi actors could have far-reaching tax indications.

Some hoped that Gensler’s history would have brought a better understanding and uniform policy from the Commission. A recent Congressional Hearing about stablecoins highlighted a serious lack of understanding by all levels of government regarding crypto currencies. 

There still remains to be any serious action on the part of the government in understanding the innovative industry. It really appears like a battle between the SEC and Treasury over who controls DeFi. 

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