SEC ‘crypto mom’ Hester Peirce attacks U.S. regulator’s new exchange definition on DeFi

U.S. Securities and Exchange Commission (SEC) member Hester Peirce has criticized the regulatory agency for its proposal to expand the definition of an “exchange” to decentralized platforms that trade cryptocurrencies, calling it an effort to stymie development of new technology in a statement titled “Rendering Innovation Kaput.”

See related article: A house divided? SEC Commissioner Peirce attacks agency’s fines against Kraken exchange

Fast facts

• Last Friday, the SEC reopened a 30-day public comment period for an amendment to the regulatory definition of “exchange” to have decentralized finance (DeFi) platforms under the regulator’s control, a move that SEC commissioner and lawyer Hester Peirce panned as an attack on development of new technology. 
• “Rather than embracing the promise of new technology as we have done in the past, here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology. Accordingly, I dissent,” wrote Peirce, in a statement published on Friday.
• The amendment, which was first proposed in January 2022, states that the term “exchanges” include platforms that use “communication protocol systems” — which the SEC defines as “trading systems that offer the use of non-firm trading interest and provide protocols to bring together buyers and sellers of securities” in a fact sheet.
• “Make no mistake: many crypto trading platforms already come under the current definition of an exchange,” SEC Chair Gary Gensler said in prepared remarks published on Friday.
• The SEC has five commissioners and voted 3 to 2 for the proposal, with Peirce and commissioner Mark T. Uyeda dissenting. Uyeda said the proposal raises more questions than it addresses “in terms of what is, and what is not, an exchange for purposes of the Exchange Act.”
• Peirce said the regulator declines to list clear examples of what “communication protocol systems” can be, and claims that the ambiguity could cause disruptions to numerous businesses and to the market.
• The SEC commissioner, who has earned the nickname “crypto mom” for her active support of the industry, further said the proposal brings broad and blurry standards that limits the scope of activities for participants in the cryptocurrency sector, undermining the country’s First Amendment rights.
• With Peirce and Uyeda opposing the proposal, there seems to be significant conflict within the SEC on how to proceed. Meantime, the Investor Advisory Committee under the SEC urged the federal regulator in an open letter published on April 6 to continue its aggressive enforcement against crypto businesses to protect investors from illegal activities.
• In February, the SEC fined cryptocurrency exchange Kraken US$30 million for providing crypto staking services, which the agency believes to be unregistered provision of securities. Peirce called this approach “paternalistic and lazy.”
• The same month, the SEC said it may take legal action against Binance USD stablecoin issuer Paxos, seeing the token as a form of unregistered securities. 
• In March, the SEC warned Coinbase of potential legal action against the exchange for violating the securities laws with its cryptocurrency staking services. Coinbase chief Brian Armstrong tweeted in response that the exchange’s staking services are not securities and he looked forward to defending that position in court.

See related article: SEC commissioner Hester Peirce says enforcement is never good way to provide clarity