Regulation

Hester Peirce, a commissioner for the U.S. Securities and Exchange Commission known by many in the space as Crypto Mom, is warning that a proposed rule from the agency could potentially affect the regulation of firms involved with decentralized finance.

According to a Tuesday Bloomberg report, Peirce said that the 654-page proposal recently released by the SEC to amend the definition of “exchange” as defined by the Securities Exchange Act of 1934 could impact the digital asset space. The SEC commissioner reportedly opposed opening the proposal to public comment and said the text could impose additional regulations on decentralized finance, or DeFi, firms.

“The proposal includes very expansive language, which, together with the chair’s apparent interest in regulating all things crypto, suggests that it could be used to regulate crypto platforms,” said Peirce. “The proposal could reach more types of trading mechanisms, including potentially DeFi protocols.”

The text of the proposal does not include terms like “digital asset”, “cryptocurrency”, or “decentralized finance”, and seems to focus instead on “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities.” According to a Jan. 26 statement from SEC chair Gary Gensler, the rule change would, if implemented, “promote resiliency and greater access in the Treasury market” by expanding regulations to include Treasury markets platforms.

Related: DeFi will provide good regulatory test for SEC, says Commissioner Peirce

Cointelegraph reported on Jan. 20 that under Gensler, SEC enforcement was “notably high” between June and September 2021, shortly after his confirmation by the U.S. Senate. The SEC chair has previously referred to projects in the DeFi space as “highly centralized” in certain aspects, and thus subject to similar regulations as projects considered to be securities — purportedly to what Peirce was referring for Gensler’s “apparent interest in regulating all things crypto.”

If approved by the commissioners, the proposed rule change will be available to public comment for 30 days upon being listed in the Federal Register. The regulators would then likely vote on the measure, taking any submitted feedback into account.