SEC Commissioner Peirce on DeFi regulation: Highlights

Commissioner Peirce talked to CryptoLaw’s Ann Sofie Cloots about DeFi & regulation.

Commissioner Peirce shared her insights on what regulators expect from DeFi’ers, the open questions they face and what DeFi’ers can do to make regulators’ life easier.

She called on the DeFi community to communicate what DeFi’s potential is in the long term, to explain DeFi in a simple way to a non-technical audience and to accept that, if we take a different regulatory approach to DeFi, this means that with greater freedom comes greater responsibility. Read a summary or the full transcript here.

Highlights from the talk (link to the full transcript below):

Does DeFi require a re-think of the regulatory structure?

“I think there are some advantages to DeFi that maybe do warrant rethinking the regulatory structure”. However, that requires the community to do its homework: “people need to remember that if they want to embrace this new regulatory approach where we’re sort of saying that the SEC or other regulators don’t need to be as involved because there is this code out there that everyone can look at, that means that people actually do have to look at the code. So with greater freedom comes greater responsibility.”

Questions people have about her safe harbour proposal?

 “[H]ow do we make sure that we can really figure out at the end of the three years whether something is decentralised”? And does it apply to governance tokens and DAOs?

Meta issues to figure out:

“[H]ow should regulation apply when you’ve got technology that allows you to do things and to push information out in a way that you couldn’t push it out before?”

What about self-regulation?

“People involved in the space should be eagerly working on trying to show how they can regulate the space themselves. And I think that will be helpful then to regulators, to make regulators more comfortable to know that there are actually people who are trying to think about how to build self regulation in from the ground up as they’re building DeFi.” It “can be helpful for us as regulators to see that there are people who are thinking about the same kinds of problems that regulators think about, and they’re trying to address those, you know, either on a self regulatory basis, building it into the code itself, or, you know, working with other people in the community to try to build norms into the behaviour and the activities in the space.”

What can DeFi’ers do right now to make life easier for regulator?

One key message is to help regulators see the use cases long-term, the value that it can bring: “people who are so deep in the DeFi space, or in the crypto space, sometimes forget to translate for the rest of the world, what the actual value is that they see in the space, and what they see … – often when there’s something new like this, the activity at the beginning is not reflective of what its gonna look like, in five or 10 years.”

“And so trying to just look down the road and help us regulators see what the mass adoption phase will look like, I think could be very helpful. Because the one issue I’ve noticed with my fellow regulators, when they talk about this, is they write it off, because they think it doesn’t bring anything new or anything valuable. And what I want people in the space to be able to explain to my regulatory colleagues is that: no, actually, all of this experimentation and activity that’s happening now is going to build the basis for a better financial system, which is probably going to be a mix of DeFi and CeFi.”

“And then also building a better way for people to cooperate with one another and to transact, to transfer value. Those things are really important, not only for coordinating human activity, but for making sure that people all over the world and in parts of society that have previously been shut out of the financial system and the economy, are brought in and are able to contribute their time and their talents and are able to get paid for their work.”

What knowledge gaps can we fill?

It “can be quite daunting to try to learn about this area. So anything that anyone could do to simplify matters for someone who’s not particularly technical, would be helpful. And I think then, thinking down the road in terms of what might be coming: so I know a lot of academics are thinking about DAOs and what that means for interaction with our current legal framework. That kind of thinking is really helpful.”

What’s the SEC’s role in all this?

“One thing I hope that the SEC can do is to really put that positive view out there that we can build a good regulatory structure that allows really important innovation to happen. So we can show people that you can approach this area with an openness – but also, you know, taking your regulatory mission seriously – but an openness to the innovation that it brings.

Has the SEC achieved that mission?

“Now, has the SEC done as good a job on this front as I would like it to? Absolutely not. We, you know, I think we’ve been overly conservative and overly negative about this space. But at the same time, I think we’ve taken some important steps like cracking down on fraud, which is something that we want regulators all over the world to be doing as well.”


Read the full transcript here.

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