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Saying that DeFi promises democratization, open access, transparency, predictability, and systemic resilience, Peirce mentioned the risks related to the industry. They include security vulnerabilities, scaling problems, and faux decentralization.
On Monday, US Securities and Exchange Commission (SEC) Commissioner Hester Peirce delivered a speech for the George Washington University Law School “Regulating the Digital Economy” conference. During the event, Peirce shared her vision on decentralized finance (DeFi), describing it as an alternative legacy financial system many are seeking right now. Besides, the SEC Commissioner said DeFi is “a very good test” for regulators and called for being “more proactive in embracing technology”.
Hester Peirce said:
“Decentralized finance will provide a very good test for our ability to regulate with an eye toward protecting the interests of investors and markets, not incumbents. The anti-Wall Street sentiments coursing through the market events of recent weeks and the growing realization of the power that private and public centralized entities wield in our lives have inspired some to call for throwing the legacy financial system out entirely. In its place, they would put decentralized finance (DeFi).”
Further, the SEC Commissioner compared DeFi with the legacy centralized financial system (“CeFi”). Saying that DeFi promises democratization, open access, transparency, predictability, and systemic resilience, Peirce mentioned the risks related to the industry. They include security vulnerabilities, scaling problems, and faux decentralization. Therefore, regulators need to “provide both legal clarity and the freedom to experiment so that DeFi can compete with CeFi to offer investors financial services.”
SEC Calls for More Precise Crypto and DeFi Regulations
Previously, Hester Peirce, known as ‘Crypto Mom’ due to her friendly attitude towards crypto, called the regulators for an urgent need for more precise cryptocurrency regulations. As Peirce explained, with more companies adopting the distributed ledger technology, new challenges for the SEC are appearing. In particular, legal issues result from removing third-party intermediaries in DeFi, such as banks and exchanges. SEC depends on these intermediaries, the lack of which in DeFi may be to blame for the numerous hacks and fraudulent activities in the space.
Speaking on the necessity of clearer crypto regulations, Hester Peirce noted they should be slow.
Earlier, the Commissioner said:
“Regulators are slow and there’s a reason we’re slow. We need to have [a] process in place so that we make sure when we’re changing rules people have notice that we’re thinking about changing a rule and they can comment.”
In addition, Hester Peirce believes that regulations and guidance should not limit which technologies companies can use. Such an approach would allow innovators to build a wide range of compliant tools and platforms.