Caroline Crenshaw, US SEC commissioner, says that DeFi projects must collaborate with the commission and find ways to comply with current regulations. In an opinion article, she underlined that though the decentralized finance system had inherent benefits, there were also the lurking dangers of not embracing a shielding regulatory framework.
Crenshaw has in her piece, ‘DeFi Risks, Regulations, and Opportunities,’ outlined her opinion that the community of DeFi must immediately address issues of pseudonymity and transparency and move towards complying with existing SEC regulations.
She noted that in the new world of DeFi, there has been a singular lack of adoption of the regulatory framework that has been used in various markets to deliver protection and transparency.
Crenshaw spoke of the absence of transparency and said that DeFi has little market protection. This leads to a 2-tiered market where insiders and certain professional investors garner huge returns.
Defi Skewed In Favor Of Insiders And Professional Investors: Sec Commissioner
While the DeFi project codes are all open-source and every transaction recorded on-chain, that still places retail investors in a disadvantageous position, she notes, as they do not have the necessary resources to execute an audit on development teams and the code used.
She says that it wasn’t reasonable to shape up a financial network that demands a high level of expertise from investors in interpreting complex code.
The commissioner has also highlighted her concern over links between market manipulation and false identity. If market participants are allowed to operate anonymously, it is not possible to mitigate or track manipulation such as the usage of bots or collusive trading.
Crenshaw said that many investors are avoiding DeFi because of privacy issues, though they seek better returns that they get from other investments.
Crenshaw criticism has been a stronger approach than that adopted by Hester Peirce, SEC Commissioner appointed during the Trump era. She is in favor of a safe harbor framework that will allow developers a grace period of 3 years to establish a decentralized system.