Unlike previous rulemaking, the US Securities and Exchange Commission (SEC) may soon cut barriers for decentralized crypto platforms.
At the conclusion of a five-part crypto roundtable event titled “DeFi and the American Spirit”, held in Washington, D.C. on 9 June, SEC Chairman Paul Atkins introduced the prospect of an “innovation exemption” designed to protect developers in a bid to boost the DeFi marketplace.
"An innovation exemption could help fulfill President Trump's vision to make America the 'crypto capital of the planet'"
“An innovation exemption could help fulfill President Trump’s vision to make America the “crypto capital of the planet” by encouraging developers, entrepreneurs, and other firms that are willing to comply with to certain conditions to innovate with on-chain technologies in the United States,” Atkins said, according to a copy of his remarks published on the SEC’s website.
This could prove to be a turning point for DeFi as we know it. By allowing developers to work without the threat of lawsuits and investigations, the new rules would encourage investment, while still allowing the DeFi community to operate legally and ethically according to US law. DeFi, or decentralized finance, is the emerging peer-to-peer financial system that aims to cut out banks and other third parties.
Left in the Dark
DeFi tokens rallied after hearing the news, with Uniswap, Aave and Curve notching double-digit percentage gains amid midday trading. Notably, Atkins, joined by other Republican SEC Commissioners, denied the idea that software developers must be held liable for how their tools are used—after all, somebody who helped to develop the self-driving car should not be liable if the car was used by somebody else to commit a traffic violation or to rob a bank, he said.
“I do not believe that we should allow century-old regulatory frameworks to stifle innovation with technologies that could upend and most importantly improve and advance our current, traditional intermediated model. We should not automatically fear the future,” he added.
As DeFi seeks to replicate traditional financial services such as lending, trading and insurance developers that create DeFi software and technologies that enable its use presently operate within a so called “grey zone” of US regulation, without clear guidance into the legal status of their activities. This potentially hampers the willingness of some investors to engage, preventing further growth.
New Horizons
As a result, DeFi operators have faced lawsuits, scrutiny and controversy, especially under the Biden administration. This may soon change, as Commissioner Atkins signaled that SEC staff should reevaluate existing protocols and possibly design new rules that would provide a clear regulatory framework for the Defi marketplace.
SEC Commissioner Hester Pierce also attended the event.
“The SEC must not infringe on First Amendment rights by regulating someone who merely publishes code on the basis that others use that code to carry out activity that the SEC has traditionally regulated,” Pierce said in her remarks, which were also published on the SEC website.
