Statement Summary
The SEC’s Crypto Task Force recently held its final roundtable, focusing on decentralized finance (DeFi) within the American regulatory framework. DeFi aims to replace traditional financial institutions with peer-to-peer transactions using blockchain technology, allowing users to interact without centralized intermediaries. While DeFi offers freedoms resonating with American values, the SEC emphasizes its role in investor protection, particularly when developers or centralized entities engage in activities that relate to securities.
The discussion aims to delineate regulatory responsibilities without compromising the First Amendment rights of code creators. The SEC seeks to prevent fraud and misrepresentation in centralized finance while supporting the open exchange of DeFi protocols.
Original Statement
Thank you, Chairman Atkins, Commissioner Crenshaw, and Commissioner Uyeda, and thank you all for joining us in-person or online for the final afternoon of the Crypto Task Force’s Spring Sprint roundtable series: “DeFi and the American Spirit.” Thank you especially to our moderator, Troy Paredes, who is returning after his excellent performance at our first roundtable back in March.
Over the past four months, the Task Force has held roundtables on security status, trading, tokenization, and custody. These roundtables have provided invaluable input to the Commission, the Task Force, and the rest of the Commission staff—input that has informed our views and improved our efforts. The Task Force, which hit the ground running in a sprint of roundtables, intends to keep running the clarity marathon.
What is DeFi?
DeFi defies our traditional, permissioned world of intermediaries. It enables a person to engage with her peers through a protocol that is open to everybody on the same transparent terms: no need to get consent from any centralized gatekeeper.
At its core, DeFi, which blockchain technology enables, is about the freedom to transact with your peers without permission, interference, or intermediation.
Regulatory Challenges
Also resonant with the American spirit is the ability of people to publish written material without permission. Code is protected speech. Because the First Amendment protects someone who writes a DeFi software protocol and publishes it, the SEC has no authority to demand pre-publication approval rights.
Conclusion
If somebody else subsequently violates the law using the software protocol, the user—not the developer of the software—should face the music. The SEC’s efforts are best spent protecting investors, not from their own use of open-source software code to engage in transactions with their peers, nor from writers of such code, but from providers of financial services.
Thank you all for being here, and I look forward to the discussion.
