SEC Chair Calls for DeFi Projects to “Step Back” in Case of Unclarity Regarding Being A Security Or Not

Gary Gensler said they would also take “enforcement” actions against fraudsters, Ponzi scheme architects, and pump-and-dumps in the crypto space that “sends a message to the rest of the market.”

In his prepared remarks at the Securities Enforcement Forum this week, the US Securities and Exchange Commission (SEC) Chairman Gary Gensler took a shot at crypto and decentralized finance (DeFi) specifically.

On Thursday, the head of the top regulator said that when it comes to DeFi, people are focusing on labels when that wouldn’t matter because it doesn’t matter what they are called, but what they do is of significance. Gensler said,

“We hear terms like “decentralized finance” (DeFi), “currency,” or “peer-to-peer lending.” It can seem easy to take these words at face value. Make no mistake: regardless of the label or purported mission, we will be looking at the economic realities of a given product or arrangement to determine whether it complies with the securities laws.”

Gensler then quoted the adage that if “a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.” According to him, it’s all about protecting investors.

The Chair further said if a project needs to ask their lawyer, accountant, or adviser if something is over the line, it may be time for them to step back from the line.

“We absolutely should not step back from the line. We should figure out where the lines are by requiring courts to tell us, especially when regulators will not,” commented Marc Boiron, General Counsel at DEX dYdX Protocol and co-chair of Blockchain Association.

So I yet again conclude that it’s unfortunate the narrative pushed by the SEC recently is ‘shut crypto down to protect investors’

“Think about the spirit of the law. It’s about protecting investors” -> we do, that’s why we’re building DeFi 🤝

— Antonio | dYdX 🦔 (@AntonioMJuliano) November 4, 2021

Gensler also commented on crypto in his “high-impact cases” section, where he covered fraudsters, penny stock scammers, Ponzi scheme architects, and pump-and-dump cons taking advantage of investors.

“We have to protect the public from as many of these scams as possible. We will continue to pursue misconduct wherever we find it.”

Besides SPACs, private funds, insider trading, recordkeeping violations, he pointed to cyber and crypto.

According to Gensler, the agency will take “enforcement” actions against those cases, which sends a message to the rest of the market that misconduct will not be permitted.

“A cop on the beat has to balance both the high-impact cases and the everyday fraudsters,” pulling many other actors back from the line, he added.