SEC commissioner Hester Peirce argues in favor of DeFi's promise of disintermediation


SEC commissioner Hester Peirce has long been the most outspoken crypto advocate at the U.S. securities regulator.

In a June 23 interview as part of a virtual conference, Peirce noted her support for much of the work of decentralized finance, or DeFi, and argued against the enforcement-based approach that she had identified with the commission's work on initial coin offerings.

"I don't want it to be an enforcement-based approach. If we can provide clarity around certain issues within DeFi, that's something we should do," Peirce said. "There are certain obvious things: If you're a decentralized platform that's actually centralized, then probably the securities laws are going to apply."

Securities laws have had a complicated relationship with cryptocurrency, as U.S. regulations have long determined that the presence of a third party in control of an asset's value is part of defining that asset as a security. DeFi hopes to remove third parties in general from exchanges between parties.

Many regulators find this sort of disintermediating concerning, as they depend on the presence of intermediaries who can file reports and, if worse comes to worse, stand trial. In the case of DeFi, a persistent cause for concern is the question of who to prosecute. Peirce sees this as a positive. 

"Disintermediating can be quite helpful for financial stability," she said. "Also for ensuring easy access to financial services on the same terms — transparent terms. That's a positive thing." 

Peirce went on to note the ongoing legal attacks on big tech firms, whose abuse of user data and even involvement in finances have led to antitrust investigations and lawsuits. Such firms are quintessential large counterparties, to which DeFi could provide a safer alternative.

On other issues, Peirce was less transparent. When asked what it would take to greenlight a Bitcoin ETF, she said "simple answer: I don't know."

When asked whether she had voted to launch enforcement against Ripple over its sale of XRP, she said "nice try," citing commission rules that prevent her from answering until the SEC's case is over. Her general comments, however, were similarly opposed to the regulation by enforcement approach that many accuse the SEC of taking with crypto:

"My complaint has been that too much of the conversation at the commission has flowed from enforcement actions, and it's been too much around enforcement actions rather than constructive regulation." 

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