Under the pro-crypto Trump administration yet another development towards ushering a better environment for Defi innovation unveiled yesterday. In a roundtable conference titled “DeFi and the American Spirit” the Securities and Exchanges Commission (SEC) Chair Paul Atkins addressed the Crypto Task Force, requesting the team to consider a conditional exemptive relief framework or “innovation exemption” for DeFi.
Explaining about how blockchain technology works and how transactions are validated, the Chair stated that these are free markets where users pay demand based fees to get their transaction included on the network. However, “the prior U.S. government administration discouraged Americans from participating in these market-based systems by asserting through lawsuits, speeches, regulation, and threatened regulatory action that participants and staking-as-a-service providers may be engaged in securities transactions”.
Atkin showed his gratitude to the Division of Corporation Finance staff for clarifying that voluntary participation in a proof-of-work or proof-of-stake network as a “miner,” “validator,” or “staking-as-a-service” provider doesnt fall within the scope of the federal securities laws.
Further speaking Atkins revealed how the previous regime suppressed the basic American value of self-custody of one’s private property. In particular, he reflected on how the previous regime had the engineers subject to the federal securities laws solely for publishing software code as they suspected these developers to conduct brokerage activity.
The Chair stated, “it would be irrational to hold the developer of a self-driving car liable – “for a third-party’s use of the car to commit a traffic violation or to rob a bank.” In such an event “one would not sue the car company for facilitating the wrongdoing; they would sue the individual who committed the wrong”.
Is regulation needed in the crypto space?
Well, regulation in the crypto space should be like a safety harness that climbers and construction workers use, not a leash that constricts movements. Regulation is needed as it can help protect ignorant consumers, who lack the technical knowledge to understand the risks involved.
It protects users against smart contract vulnerabilities, impermanent loss in DeFi liquidity pools, and rug pulls. Once regulated, there will be transparency, and projects will be required to do smart contract audits, and there will be enforcement of accountability for fraudulent activities.
However, an excess of regulation could stifle innovation, as developers and entrepreneurs would not be willing to be held accountable for scammers who use their protocol to rug the users. So, regulation is about finding the balance between protecting users and giving enough space for innovation.
