The US Securities and Exchange Commission (SEC) announced its intention to regulate decentralized finance (DeFi) platforms that trade crypto securities.
He said that this would protect investors and enhance cybersecurity.
However, Gensler’s plan has met with strong opposition from the crypto industry and some US lawmakers. They argue that Gensler is overstepping his authority and stifling innovation in the crypto space.
They also claim that DeFi platforms are decentralized and autonomous, and therefore not subject to SEC oversight.
DeFi platforms use smart contracts and blockchain technology to enable users to trade, loan, and earn interest on crypto assets. Some of these platforms may involve securities, which are regulated by the SEC.
Gensler said many DeFi platforms are now exchanges and must comply with securities regulations.
The SEC would give additional clarity and economic analysis for systems included in the new proposed exchange definition and promote openness and long-term growth in the crypto ecosystem, he stated.
The SEC reopened the comment period for the proposed amendments to the definition of “exchange” on April 14.
The original proposal was made in January 2022 and focused on alternative trading systems (ATS) that trade Treasuries and other government securities.
The SEC received several requests for information regarding how the existing rules and proposed amendments apply to systems that trade crypto asset securities, including DeFi systems.
The SEC invited public comments on the proposal for 30 days following its publication in the Federal Register.
Gensler’s plan to regulate DeFi platforms has also faced backlash from some industry players. Binance CEO Changpeng Zhao said at the Hong Kong Web3 Festival on April 12 that centralization typically leads to inefficiency and corruption. He said DeFi platforms give people greater freedom and choice, and regulators shouldn’t enforce their views.
Gensler’s plan has also drawn criticism from US lawmakers, including Representative Warren Davidson, who threatened to impeach him. He said that Gensler was overstepping his authority and stifling innovation in the crypto industry.
US Representative Tom Emmer also criticized Gensler for targeting crypto platforms with enforcement actions while ignoring the real problems in the sector.
