SEC Chairman Gives Green Light, Is DeFi Summer Making a Comeback?

Original Author: Paul S. Atkins, Chairman

Original Translator: DeepFlow Tech

Editor's Note: On June 10, the DeFi Education Fund disclosed that the SEC's crypto working group held a roundtable today on "DeFi and the American Spirit." At the start of the roundtable, SEC Chairman Atkins discussed how decentralized finance (DeFi) aligns with American values: "The American values of economic freedom, private property rights, and innovation are at the core of the decentralized finance (DeFi) movement." Furthermore, Chairman Atkins emphasized that developers of neutral tools should not be held responsible for the actions of third parties.

Thank you, good afternoon. I am delighted to be here with all of you today. First, I want to thank Commissioner Peirce and the cryptocurrency working group for organizing today's event, and also thank Commissioners Cranston and Uyeda for their participation. Of course, I also want to give special thanks to the roundtable discussion participants and the moderator, Troy Paredes, who have generously contributed their time and expertise to support our cause.

Today's roundtable theme is "Decentralized Finance and the American Spirit." This theme is very fitting as the core American values of economic freedom, private property rights, and innovation are deeply embedded in the genealogy of decentralized finance (DeFi).

Blockchain is undoubtedly a highly creative and potentially revolutionary innovation that has led us to rethink ownership and transfer of both intellectual and economic property. Blockchain is a shared database that enables ownership of a form of digital property called cryptocurrency without the need for intermediaries or centralized institutions. These peer-to-peer networks incentivize participants to validate and maintain the database according to network rules through economic mechanisms. These are free-market systems where users pay demand-based fees to network participants to have their transactions included in so-called "blocks" with limited storage capacity.

Previously, the U.S. government has attempted to deter Americans from participating in these market-based systems through litigation, speeches, regulation, and threats of enforcement actions, alleging that participants and providers of staking-as-a-service may be engaging in securities transactions. I am grateful for the staff of the Division of Corporation Finance for making it clear that voluntary participation in proof-of-work or proof-of-stake networks as "miners," "validators," or "staking-as-a-service" providers falls outside the ambit of federal securities laws. While I am pleased with this development, it is not a legally binding rule, so we cannot stop here. The SEC must promulgate regulations based on the powers granted to us by Congress.

Another core feature of blockchain technology is the ability for individuals to autonomously manage encrypted assets through a personal digital wallet. The ability to autonomously manage private property is a fundamental value in the United States and should not disappear simply because individuals are logging onto the internet. I support providing greater flexibility to market participants so they can autonomously manage encrypted assets, especially when intermediaries add unnecessary transaction costs or restrict the ability to participate in staking and other on-chain activities.

The former president's administration weakened innovation in autonomous management of digital wallets and other on-chain technologies through regulatory actions, claiming that developers of such software may have engaged in broker activities. However, merely publishing such software code should not subject engineers to federal securities law. As one court stated, holding developers of self-driving cars liable for third-party misuse of the car in traffic violations or bank robberies is irrational—quoting the court's ruling, "In such a case, one would not sue the car company for aiding and abetting the crime, but rather the individual committing it."

Many entrepreneurs are developing software applications that operate without operator control. This type of self-executing software code, which is open to everyone but controlled by no one and enables private peer-to-peer transactions, may sound like science fiction, but blockchain technology makes all of this possible. This new category of software can achieve these functions without intermediaries. I believe we should not let existing century-old regulatory frameworks hinder these potentially disruptive, most importantly, improvements and advancements in the current traditional intermediary model of technological innovation. We should not automatically fear the future.

These on-chain self-executing software systems have shown resilience in times of crisis. While centralized platforms have buckled and even collapsed under recent pressures, many on-chain systems continue to operate normally as designed in open-source code.

Most current securities rules and regulations are based on regulating issuers and intermediaries (such as broker-dealers, advisors, exchanges, and clearing agencies). The drafters of these rules and regulations may not have foreseen that self-executing software code could replace these issuers and intermediaries. I have asked the staff to explore whether further guidance or rulemaking is needed to help registrants transact with these software systems while complying with applicable laws.

I am also very excited about issuers and intermediaries using on-chain software systems to reduce economic friction, improve capital efficiency, support new financial products, and enhance liquidity. Current securities regulations have already considered the possibility of issuers and intermediaries using new technology, but I have asked the staff to consider whether revisions to the Commission's rules and regulations are needed to better support issuers and intermediaries wishing to manage on-chain financial systems.

As the Committee and its staff work to develop specialized rules for the on-chain finance market, I have instructed staff to consider a conditional waiver framework or an "Innovation Waiver" to rapidly allow both registrants and non-registrants to bring on-chain products and services to market. The Innovation Waiver can help realize the vision put forth by President Trump—making the United States the "Global Crypto Capital"—by encouraging developers, entrepreneurs, and other willing companies to engage in on-chain technology innovation in the United States while complying with specific conditions.

Thank you for your attention, and I look forward to the upcoming discussion.

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