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SEC Asserts DeFi as Subject to Securities Regulations

The U.S. Securities and Exchange Commission (SEC) has recently warned that decentralized finance (DeFi) could be subject to securities regulations. This move aligns with Chairman Gary Gensler's stance that the crypto sector belongs in the securities world and should be regulated.

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SEC logo

Crypto Industry's Request for Tailored Regulations Denied

The crypto industry has long sought specific rules or guidance from the SEC for digital asset businesses. However, the SEC's decision to include DeFi in its proposal for a new exchange definition indicates that tailored regulations will not be granted for the crypto financial movement.

SEC Unwilling to Accommodate DeFi Technology

SEC Commissioner Hester Peirce criticized the decision, stating that the SEC is unwilling to adjust to accommodate DeFi technology. Peirce believes that the agency's approach could lead to the demise or transformation of decentralized entities.

SEC Seeks to Regulate DeFi Protocols in America

According to Jason Gottlieb, a lawyer with crypto clients, the SEC's move aims to regulate DeFi protocols in the United States. He argues that the change would force decentralized software protocols into a regulatory framework they cannot technologically comply with.

Gensler Calls for Equal Protection for Crypto Investors

Chairman Gensler emphasizes that crypto investors must receive the same protections as those in other securities markets. The SEC has targeted trading platforms, labeled tokens, and proposed rules to enforce these protections.

SEC's Approach to Crypto Hinges on Congress or Court Cases

The SEC's approach to crypto could be altered by legislation from Congress or the outcome of court cases, such as the legal dispute with Ripple Labs over XRP's status as an unregistered security.

DeFi Proponents Hope for Decentralization Loophole

DeFi proponents hoped their decentralized approach would exempt them from such regulations. However, if the SEC approves the proposed exchange definition, merely labeling transactions as "decentralized" won't suffice.

Crypto Industry Expected to Evolve Despite Regulations

Joshua Ashley Klayman, head of the crypto practice at Linklaters, believes that the crypto industry will continue to evolve despite regulatory challenges. Commissioner Peirce also acknowledges the significance of the latest move on DeFi, noting that enforcement decisions will ultimately shape the industry's future.