The SEC Chair calls DeFi a "misnomer" and suggests that further regulations are on the way.

Chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has reaffirmed his position on decentralized finance (DeFi) laws. In a recent interview with the Wall Street Journal, Gensler called the word DeFi a "misnomer" and discussed his overall position on the sector.


Since Gensler's confirmation as SEC Chair by the US Senate, the crypto sector has been expecting the regulator to take a more open stance on cryptocurrencies and blockchain technology. Gensler taught a cryptography course at MIT and appears to be well-versed in the field.

His mandate, on the other hand, has already asked Congress for more authority to oversee cryptocurrencies and has labeled the industry the "Wild West" of finance. In the interview, Gensler questioned DeFi's decentralized character, emphasizing the need for further oversight from the SEC and other US regulators. According to the Chairman,

These (DeFi) systems make it possible to do things that are decentralized in some ways but centralized in others.

Furthermore, Gensler mentioned a project that "rewards participants with digital tokens," most likely referring to the governance token airdrops offered by several DeFi protocols. He feels that these incentives and their distribution may be in violation of US securities legislation and that they "should be regulated." According to Gensler,

There is still a core group of people that not only write the software, such as open-source software, but also manage it and charge fees. In the heart of it all, there's an incentive system for the promoters and sponsors.

This could have an impact on DeFi teams, referred to as "promotors" and "sponsors" below. The possibility of increased rules has already had an impact on the DeFi sector, as reported approximately a month ago.

As a result, Uniswap Labs and other teams used their user interface to restrict access to specific tokens. Many teams could opt out of their U.S.-based operations and relocate to more friendly jurisdictions if Gensler's SEC is given more authority.

Is the DeFi Sector the Public Enemy No. 1?

Gensler is far from the lone government figure who wants tougher rules. Senator Elizabeth Warren of the United States has asked the Securities and Exchange Commission to clarify its authority over these asset classes, according to Bitcoinist. Senator Warren is a vocal opponent of cryptocurrencies, decentralized financial systems, and the crypto business.

According to legal expert Collins Belton, Gensler's remarks on decentralized finances could be directed at "whales" and "insiders" with "concentrated ownership" of a protocol. Belton continued, "

(...) concentrated ownership can lead to the exact problems that securities rules are designed to address. Reducing insider voting concentration is really a net gain for DeFi in the long run because it enhances decentralization, so this isn't necessarily a negative thing.

The legal expert did not rule out the possibility that the Commission will target all investors, regardless of whether or not they have influence over the protocol. Finally, Belton noted, officials can either push DeFi out of the country or implement a "sensible regulation."

According to DeFiPulse, the total value locked (TVL) throughout the DeFi protocol is $79.6 billion. This measure hit an all-time high in 2021, when the industry was valued at about $88 billion. This indicates that, despite market volatility, the sector is expanding and becoming more relevant.

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