SEC chief slams ‘highly centralized’ DeFi projects. Is regulation coming?

The head of the US Securities and Exchange Commission (SEC) Gary Gensler is ready to draw regulatory lines for the decentralized finance (DeFi) sector, saying that many projects are not sufficiently decentralized to escape the agency’s supervision.

Some DeFi projects display certain aspects that put them in the same basket with entities scrutinized by the regulator, insisting on primarily being concerned with investor protection.

Why many DeFi projects fit the profile

Gensler, who already warned that the DeFi sector is bound to get regulated, explained why some projects fit the SEC’s target profile.

Since they are developed by a “core group of folks,” typically incentivized to promote their platforms, many of the patrolled projects displayed “highly” centralized features, Gensler told The Wall Street Journal.

Despite their non-custodial nature, many DeFi projects have an organized group of developers, typically incentivized to promote their platforms and, as such, display clear centralized features that call for regulatory compliance, explained Gensler.

“There’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees,” he said, focusing on the “incentive structure for those promoters and sponsors in the middle.”

Work with us and get registered

“These so-called decentralized finance platforms actually have a lot of centralization. There’s a group of entrepreneurs that are running these platforms. They should come in and to that extent work with us and get registered,” said Gensler in another interview with Fox Business, this time urging DeFi projects to register with the Commission, while saying the SEC might be “neutral” when it comes to crypto, but is not neutral about investor protection.

In the growing plethora of DeFi projects, there are those with fully anonymous developers, yet some of the largest DeFi platforms have a more transparent background, which could turn them into the watchdog’s top targets. 

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