thecoinrepublic.com
- Pierce feels that the best way for DeFi creators to avoid financial regulation is to secure absolute decentralization from the start
- Regulators can locate a centralized component or group of persons to seize
- In the DeFi sector, the commissioner also mentioned the presence of shadow-centralization
DeFi founders’ only hope of avoiding financial regulation, according to SEC Commissioner Pierce, is to secure absolute decentralization from the start. The US Securities and Exchange Commission’s Hester Pierce, dubbed Crypto Mom, has warned of widespread shadow-centralization in the decentralized finance (DeFi) sector.
DeFi seems new concept for regulators
The SEC commissioner noted in an August 4 discussion with outspoken DeFiWatch founder Chris Blec, streamed by The Defiant, that decentralized organizations and DeFi are new concepts for regulators, and that: having a peer-to-peer system without central intermediaries is very different from what we’re normally dealing with.
If you want to be decentralized, you actually need to be decentralized, which will put you in a separate category in the eyes of regulators since it’s something we’ve never dealt with before.
Regulators will seize control of a centralized component or group of individuals if they can discover one. So he believes it’s best to be cautious about how you build things because it may have regulatory ramifications down the road, she added. Pierce was asked by Blec for his thoughts on the optimal path for establishing decentralized protocols, specifically whether creators should aim for the same level of decentralization as Bitcoin, or start conservatively and work their way up to regulation to avoid running afoul of the law.
Existing regulations, according to the commissioner, are structured such that any organization or person acting in the financial industry is likely to come within at least one regulatory framework.
Views of Pierce on DeFi founders who are busy in new activities
DeFi founders who believe they are engaging in new activities that do not fit within the scope of existing regulations should contact regulators to see if there is a different method to comply, according to Pierce.
If you want to differentiate yourself from the CeFi or TradFi systems, you must demonstrate that you are doing something completely new, which, in my opinion, necessitates decentralization.
She went on to say that if the trust comes from the code, it’s not the same as if it comes from a single organization or a group of people. The commissioner also mentioned the presence of shadow-centralization in the DeFi sector, where opaque governance arrangements can lead to centralized control of a protocol despite its marketing claims of decentralization.
Pierce, on the other hand, pushed regulators to adapt to decentralized innovation, saying, Regulators need to figure out how to engage with entrepreneurs better. She went on to say that this is one of the reasons our financial system is so centralized. Because the only people who can afford to wait for approvals are those who already have a lot of money and can afford to hire excellent lawyers.
Pierce responded to the issue of what Satoshi Nakamoto’s experience would have been if they had approached the SEC before launching Bitcoin: It’s 2021, and Satoshi would very certainly still be trying to get a no-action letter.