Why Peirce thinks that DeFi would provide SEC with a successful regulatory test

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The SEC commissioner described the DeFi space as “a work in process” but “alluring.” overall.

Hester Peirce, U.S. Commissioner. The Securities and Exchange Commission, dubbed “Crypto Mom,” embraces the challenge of controlling decentralised finance.

In a speech at the George Washington University Law School event on the digital economy, Peirce said decentralised finance, or DeFi, may be the alternative legacy of the financial system that many are seeking, given the rise in anti-Wall Street sentiment surrounding the short-term tightening of GameStop stocks. The SEC Commissioner said that the technology will provide the regulator with a “very good test” to protect investors and markets.

“Although a work in progress with all the growing pains and rough edges that implies, DeFi’s promises of democratization, open access, transparency, predictability and systemic resilience are alluring,” said Peirce. “We regulators, mindful of the potential upsides and downsides, need to provide both legal clarity and the freedom to experiment so that DeFi can compete with CeFi to offer investors financial services.”

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Peirce added that the SEC should look for ways to insure that markets are inclusive, considering the anger that many have expressed since the 2008 financial crisis, but most recently over the GameStop trades. She said the Commission should be “more proactive in embracing technology” in order to make the economy work better for more people.

“The digital economy does pose some new regulatory challenges, but it also gives us new tools to meet those challenges. We should use those tools with genuine care for the freedom of the people we regulate.”

The Commissioner has previously confirmed that DeFi has generated new problems for the SEC on a range of outstanding legal issues. While certain space ventures are likely to come under securities regulations, there are several DeFi offerings made up of tokens that lack liquidity and are used to fund blockchain projects. She warned developers to talk to the SEC if the project “looks like the traditional security.”

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