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

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Hester Peirce, commissioner of the US Securities and Exchange Commission and known by the nickname “Crypto Mom”, welcomes the challenge of regulating DeFi.

In a speech at a George Washington University Law School event on the digital economy, Peirce said decentralized finance, or DeFi, could be the alternative legacy financial system that many are looking for given rising anti-Wall Street sentiment surrounding the short squeeze on GameStop shares. The SEC Commission said the technology could provide a “very good test” for the regulator in protecting investors and markets.

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“While a work in progress with all the growing difficulties and roughness that this entails, DeFi’s promises of democratization, open access, transparency, predictability and systemic resilience are appealing,” said Peirce. “We regulators, aware of the potential pros and cons, must provide both legal clarity and the freedom to experiment so that DeFi can compete with CeFi in providing financial services to investors.

Peirce added that the SEC should look for ways to ensure markets are inclusive, given the frustration many have expressed from the 2008 financial crisis, but more recently over GameStop transactions. She said the commission should be “more proactive in adopting technology” to make the economy work better for more people.

“The digital economy poses new regulatory challenges, but it also gives us new tools to meet these challenges. We must use these tools with genuine concern for the freedom of the people we regulate.”

The commissioner previously said DeFi has created new challenges for the SEC for a number of unresolved legal issues. While some projects in the space are likely to fall under securities laws, there are plenty of DeFi offerings made up of tokens that lack liquidity and used to fund blockchain projects. She warned developers to speak to the SEC if the project “looks like traditional security.”

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