Ethereum's DeFi changes everything... Except the good old habits of the taxman?!

DeFi in the SEC’s crosshairs – The chairman of the Securities and Exchange Commission (SEC) is far from soft on decentralized finance (DeFi). The agency could regulate an industry that is decentralized in name, but centralized in practice.

DeFi decentralized in some ways, but centralized in others

In an interview with the Wall Street Journal, US SEC Chairman Gary Gensler invited DeFi projects to register with the Commission. In doing so, the top executive hinted that the agency could regulate DeFi protocols, which he said are centralized in some aspects. The term “DeFi” would be “a bit of a misnomer,” as the platforms “facilitate something that might be decentralized in some aspects, but highly centralized in others.”

Gensler took particular aim at DeFi projects that reward their users with tokens or similar incentives. He says many of them are developed and controlled by a centralized team incentivized to promote these projects:

“There’s some incentive structure for these promoters and sponsors in the middle of it all.”

The SEC chairman compares some DeFi platforms to SEC-regulated P2P lending platforms.

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Coming out of the shadows of centralization and regulatory frameworks

SEC Commissioner Hester Pierce had also warned in early August 2021 about DeFi projects against “shadow centralization.” At the time, he spoke of the need for a project to be truly decentralised in order to break out of the existing regulatory framework:

“If you’re going to be decentralised, you really have to be decentralised, and that’s going to put you in a different category from the regulators’ perspective, because it’s just not something we’ve dealt with before.”

Gensler, meanwhile, called for regulation of DeFi on Aug. 3, speaking before theAspen Security Forum, including for cryptocurrency trading and lending:

“In my view, the legislative focus should be on crypto trading, lending and DeFi platforms. Regulators would benefit from additional plenary authority to draft rules and set safeguards for cryptocurrency trading and lending.”

DeFi is far from convincing the US regulator. As if that wasn’t enough, <a href=”” target=”_self” rel=”noopener”>the recent Ciphertrace report showing an increase in hacks in the industry further tarnishes its image.

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