Lawyers Say SEC is Coming after DeFi

Crypto exchanges and other parts of the digital asset industry could be in a world of trouble, as the US Securities and Exchange Commission (SEC) recently announced that it is beefing up its crypto enforcement taskforce. The agency is broadening its perspective that some of the cryptocurrencies available in the market might be securities.

SEC is hiring more people for crypto enforcement

Last month, the regulatory agency announced that it was adding 20 enforcement positions primarily for cryptocurrency, which would expand its total crypto enforcement staff to 50. People who have been keeping an eye on the development have said that the agency will be taking a closer look into the industry and a crop of new crypto-related startups to check for violations.

Experts stated that this would mean more regulation and there are a number of potential targets of the SEC. These include stablecoins, non-fungible tokens (NFTs) along with platforms that offer to trade of digital tokens that are classified as securities.

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Lawyers have also said that it is expected that the SEC would focus on one of the most popular areas of the digital assets industry’ decentralized finance (DeFi). These platforms boast a decentralized structure for creating peer-to-peer markets, which means that no intermediary is required for conducting transactions between two parties, such as a bank or stock exchange.

Gary Gensler, the Chairman of the SEC, has already said that the agency is taking a look at decentralized finance platforms. There is a handful of DeFi platforms that are responsible for the majority of the activity in this space. Gensler stated that 80% of the total activity that occurs in the decentralized finance space is conducted by the top five platforms.

Experts said that if the DeFi platforms are really controlled by a small group, there would likely be some action from the SEC. But, they may not have to worry about scrutiny from the agency, given how they are structured.

The DeFi space may not have to worry

According to lawyers, the SEC will not be able to make a case against a decentralized platform for selling securities, if it is really decentralized. Nonetheless, it should be noted that they have already targeted platform that offer borrowing and lending services for crypto assets, allowing people to earn interest. BlockFi Lending LLC had found itself in hot water back in February when the SEC filed a case against it.

The platform was paying a variable rate of interest to investors who lent their crypto assets. According to the SEC, this falls under the securities law. If they find the same on decentralized platforms, it is possible that the SEC may take legal action. But, it will not be able to do much if it is purely decentralized.

BlockFi had decided to settle the charges filed by the SEC by paying $100 million. The platform also agreed to comply with the securities law and register itself in the future. Initially, it is expected that the SEC will target decentralized finance apps that are not fully decentralized, as advertised.