SEC boss says DeFi platforms are ‘highly centralized’ and will need to register

Published at: Aug. 20, 2021

Gary Gensler, chairman of the United States Securities and Exchange Commission, stated that decentralized finance (DeFi) is highly centralized in certain aspects and urged projects working in the sector to register with the SEC.

Speaking to The Wall Street Journal on Thursday, Gensler suggested that the decentralized notions implied by the term DeFi were “a bit of a misnomer,” adding:

“These platforms facilitate something that might be decentralized in some aspects but highly centralized in other aspects.”

While DeFi projects are designed to be autonomous platforms that operate without a centralized authority, Gensler asserted that many are developed and controlled by a centralized team that is incentivized to promote its platforms.

“There’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees,” he said, continuing, “There’s some incentive structure for those promoters and sponsors in the middle of this.”

Gensler expanded on his comments in a Friday interview with Fox Business and suggested that such DeFi projects are centralized enough to fall under the scope of regulation. He urged DeFi projects to register with the SEC:

“These so-called decentralized finance platforms actually have a lot of centralization. There’s a group of entrepreneurs that are running these platforms. They should come in and to that extent work with us and get registered.”

Earlier this month, SEC Commissioner Hester Peirce — colloquially known as “Crypto Mom” — echoed similar sentiments from a different angle when she warned of “shadow-centralization” within the DeFi sector.

Peirce stated that “if regulators can find a centralized part or group of people that they can grab hold of, they will grab hold of them,” as she urged for caution in how projects are built from the ground up.

“If you want to be decentralized, you really need to be decentralized, and that is going to then put you in a different category from the perspective of regulators because that’s just not something that we’ve dealt with before,” she said.

Cointelegraph reported on Aug. 3 that Gensler had identified several crypto policy changes that are being examined by the SEC, including matters concerning DeFi, lending platforms, token offerings, stablecoins, exchange-traded funds and custody.