SEC’s Caroline Crenshaw Requirements For DeFi
In an effort to ensure conformity with established rules, Commissioner Caroline Crenshaw expects DeFi initiatives to collaborate with the Securities and Exchange Commission (SEC). Commissioner Caroline Crenshaw of the SEC has written an article posted on Nov. 9 highlighting the merits of decentralized finance whilst also stressing the perils of neglecting to adopt a strong policy structure. This is the first paper published in the first edition of “The Global Journal of Blockchain Regulation,” and it is titled “DeFi Risks, Regulations, and Opportunities.”
According to Crenshaw, the DeFi community, in general, must tackle problems of openness and cryptographic protocols while also complying with SEC rules. “In the new glorious DeFi globe, there’s not been wide acceptance of legislative frameworks that provide essential security in other markets,” Crenshaw notes. When it comes to what Crenshaw perceives as a lack of accountability, she says DeFi simply lacks economic safeguards, which “adds to a two-tier market in which investment managers and insiders earn disproportionately large rewards.”
Retails Investors Are At A Disadvantage
The technology for most DeFi initiatives is publicly available and all records are kept on-chain, she claims, but individual investors are at a disadvantage compared to investment managers, who have the means to do checks on the programming and development staff. She argues that it is not acceptable to design a monetary structure that requires clients to also be competent processors of complicated code. On top of that, Crenshaw expressed worries about the relationship between data confidentiality and price manipulation.
She noted that when industry players operate behind pseudonyms, it becomes more difficult to identify and counteract exploitation, such as through the employment of algorithms and coercive trading, on the exchanges. She stated that individuals are particularly exposed to losses as a consequence of price manipulation since regular indications, including transaction volumes and velocity, become untrustworthy as a result of the control. Moreover, she feels that DeFi initiatives should engage in open dialogue with the SEC to discover answers to the challenge of determining how online anonymity may be achieved while still complying with existing norms and regulations.
Higher Returns And Not Anonymity
Players in the DeFi community have traditionally seen the option to stay anonymous as a benefit rather than a hardship. On the other hand, Crenshaw believes that investors are not more concerned with anonymity than they are with making a profit: “I think it is likely that most individual investors who are starting to move to DeFi are not doing so just because they want increased privacy; they are doing so simply because they want better yields than they genuinely think they can get from other financial assets.”
Speaking at the SEC Speaks conference held in D.C. on October 12, Crenshaw asserted that current regulatory structures, including gate-keeping roles in conventional markets, are adequate for safeguarding participants in the virtual market area. Even though Crenshaw’s existing criticisms of DeFi do not amplify the warlike views expressed by Senator Elizabeth Warren and retired Commodity Futures Trading Commission Chief Dan Berkovitz, they are less desirable than the stance taken by SEC Council member Hester Pierce, who endorses an equal protection law that’d bestow network programmers with a three-year time limit to build a decentralized system.
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