Last week, Timothy Massad, a former chairman of the Commodity Futures Trading Commission (CFTC), offers incomplete service despite claims that DeFi enthusiasts will replace traditional intermediaries. Insisted. He participated in the OMFIF panel to discuss cryptocurrency regulation with SEC Commissioner Hester Peirce. It also discussed what the cryptographic framework might cover, where the current gaps exist, and whether there is a need for new cryptographic regulators.
Masad describes DeFi as follows: “It’s like saying that you can make a car that has far better fuel economy than what Ford and GM can produce because it doesn’t brake. Obviously, it doesn’t work.” He said. Emphasizing the need for the same risk, same rule approach, the centralized entity is currently providing KYC, investor disclosure, reporting, and other protections.
At the big picture level, Masad agrees with Perth that it is much better to regulate through rules than to enforce, and that the SEC and CFTC should work together to reach common standards. Did. However, he said many DeFi companies misunderstand the responsibilities of regulatory agencies.
“From when we have these laws, it’s the regulatory authority’s responsibility to tell innovators that you have to comply,” he said. “It is the responsibility of the regulatory agency to ensure that the application of these requirements is clear.”
No action letter, potential crypto regulator
Both Massad and Peirce discussed the possibility of a regulatory sandbox, considering it unnecessary for the SEC and CFTC. Instead, both organizations have tools for no-action letters and exemptions. The two methods are similar, but the exemption order is context-specific and does not set a precedent for other companies.
However, Perth acknowledged that the action letter didn’t take too long and probably the SEC would have to spend more resources on it. What she found useful was a general regulatory sandbox that spans government sectors, dealing with uncertainty about which sector has jurisdiction.
Regarding the need for cryptoregulatory authorities, she said the regulatory space was already crowded. But she “I think the existing regulatory agencies are really confusing,” so I understand the demand. Perth finds several benefits to self-regulatory organizations that can adapt as technology evolves.
Masad emphasized that even if the two regulators come together, there is a big gap. While the SEC covers securities, the CFTC has only the authority to regulate commodity derivatives and does not regulate cash transactions of non-securities crypto assets. The two that are not considered securities are Bitcoin and ETH, and a significant proportion of crypto activity is around their cash market.
As an example, he provided a lack of regulatory oversight for cryptocurrency exchanges. Last week’s Coinbase regulatory filing included a paragraph about what would happen in the event of bankruptcy. “Cryptocurrency assets that we store on behalf of our customers may be subject to bankruptcy proceedings, and such customers may be treated as our general unsecured creditors.” increase.
“This is very different from what happens with brokers / dealers who are doing things like SIPC protection,” Masad emphasized.
Key issues to be addressed within the regulatory framework
Perth was asked about important considerations regarding the potential regulatory framework. She believes that the main issues to be addressed are:
- Investor protection, including providing sufficient information for decision making and understanding of risk
- Financial stability considerations
- When is a token sale considered part of a securities offer? And does the securities law apply throughout its life?
- Numerous questions about storage
- How financial institutions interact with cryptocurrencies
- How traditional finance and cryptocurrencies intersect.
In this latter point, the industry needs to be allowed to experiment and may need to adjust how the rules are applied. Although Peirce does not mention it, this may be in favor of the European DLT pilot regime on security tokens and similar features in the UK.
First Amendment Problem
Perth is concerned that regulations can be overkill. She said that if someone had just written the code and wasn’t involved in running the DeFi solution, the first fix could have an impact on preventing people from coding.
When Masad used some of the autonomous software to execute his Ponzi scheme, Bernie Madoff said, “We can’t say Bernie. Bernie gets off because there is no centralized entity. Should be. “
Steve Kokinos, CEO of Algorand, warned that blockchain has many uses beyond finance. Regulations run the risk of pulling in digital assets with few or no financial applications.