Commissioner Hester M. Peirce dissented with the SEC’s recent release targeting DeFi, arguing that the stance not only fails to address whether compliance is actually possible, but undermines free speech.
On Friday, the U.S. Securities and Exchanges Commission (SEC) published a press release revisiting plans to include crypto trading platforms under the definition of an exchange. SEC Chair Gary Gensler said the Commission “already” views crypto trading platforms as exchanges, so they must comply accordingly.
Not every SEC Commissioner is in agreement with the idea, though.
Commissioner Hester M. Peirce, sometimes known as ‘Crypto Mom’ on Twitter for her open-minded approach to financial innovation, dissented with the Commission’s proposal, labelling it as “stifling” and “unworkable”.
Read more: SEC Says DeFi Platforms Must Comply With Securities Law
The opening paragraph to her dissent boldly stated: “Stagnation, centralization, expatriation, and extinction are the watchwords of this release. Rather than embracing the promise of new technology as we have done in the past, here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology. Accordingly, I dissent.”
Who is Hester M. Peirce?
Commissioner Peirce is one of the most sought-after commentators on a wide range of issues relating to the economy, financial regulation, and investor protection. She has served as Commissioner for the SEC since 2018 and has a strongly academic background.
Her views on the importance of embracing new technologies while maintaining investor protection have made her a popular figure among crypto enthusiasts, earning her the nickname “Crypto Mom”.
In her dissent, Commissioner Peirce laid out three key arguments against categorising DeFi systems under the traditional exchange definition, namely:
1. It imposes “confusing and unworkable standards” on blockchain ecosystems
Peirce dissented by arguing that the SEC’s stance struggles to define what constitutes a ‘group’ in the context of decentralised trading, since the infrastructure is software-based and participants rarely know each other.
In crypto, a ‘group’ acting ‘in concert’ with each other could include a huge range of individuals, including miners and validators. Regulating DeFi in the same way as a traditional exchange runs the risk of being too broad and it could make a wide range of actors liable for securities law violations.
2. Ambiguity undermines free speech
By making everyone involved in a blockchain ecosystem a “group”, the SEC creates significant ambiguity about what speech requires pre-approval.
The Commissioner asked: “What does all of this mean? Do First Amendment protections extend only to code published by hobbyist coders? Does a university professor who, as part of her research publishes such code, risk triggering the exchange definition merely because she is paid for that research?”
She added: “My T-shirt might even get me in trouble: It is not just a pretty design; this shirt republishes the code submitted by a commenter who explained that buyers or sellers of tokens could use it to express non-firm trading interest. If I wear my T-shirt out in public after this rule takes effect, do I have to register? What if I sell this T-shirt to someone who then deploys the code?”
3. The release doesn’t consider where compliance is actually possible
Peirce outlined that the SEC’s past attempts to regulate the crypto markets have failed, so they must consider adapting its regulatory model to accommodate DeFi.
She wrote: “The Commission of the 1990s understood this basic principle and created space for significant innovations in securities trading. This release, on the other hand, takes the view that any business model that cannot meet the specific requirements of our existing regulatory model does not belong in our markets.”
Interpreting DeFi systems as traditional exchanges will, she argued, drive decentralised protocols toward “centralization, extinction, or expatriation.”
The SEC’s view that DeFi systems are already exchanges is still in the ‘public comment’ period.
You can find out more about how to participate in public comment regarding this matter here.
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