All cryptocurrencies will be regulated. Or else.
That was the clear and unambiguous message Gary Gensler, the chair of the U.S. Securities and Exchange Commission, delivered Tuesday in a livestream with The Washington Post.
Gensler said there’s no question in his mind that digital tokens fit the definition of securities and are subject to federal registration and disclosure laws. In a nod to regulatory “sandboxes,” he urged DeFi entrepreneurs to collaborate with the commission to comply with tax, anti-money-laundering, and securities rules.
“We have robust authority at the SEC and we will use it,” Gensler said. “It would be better if the platforms that are trading securities, that have lending products or staking products, come in and let’s figure out how to get them within the perimeter.”
For those who choose to stay outside the perimeter, Gensler vowed to be the “cop on the beat” and bring enforcement actions against them.
Gensler also said that his staff is working closely with regulators in the U.S. Department of the Treasury and banking oversight agencies to examine stablecoins. Gensler likened these staples of the DeFi ecosystem to “poker chips at the casino gaming tables” of the Wild West.
Working under the guidance of Treasury Secretary Janet Yellen, Gensler is considering whether to seek the help of congress in regulating stablecoins, a signal that new legislation may be warranted.
Gensler’s saber rattling is bound to inflame an industry already singed by a flurry of actions. On Monday, Coinbase abandoned its plan to offer an interest-rate paying product called Lend after the commission notified the listed company it would sue to block the unlawful sale of an unregistered security. The SEC is reportedly investigating Uniswap, and The Defiant reported earlier this month that the agency is conducting a broad-based sweep of the entire DeFi market.
Ryan Selkis, the outspoken CEO of Messari, the crypto data intelligence provider, was so incensed Monday by the Feds’ moves that he vowed to run for the U.S. Senate. On Tuesday he riffed on the SEC’s reputation for being woefully behind the curve when it comes to tech. “If today’s SEC had been responsible for internet policy in the ’90s we’d still be communicating via fax,” Selkis tweeted.
In Gensler, 63, the crypto community faces a formidable adversary. A onetime partner in Goldman Sachs’ mergers & acquisitions practice, Gensler knows his blockchain. As a professor at MIT, he served as a senior advisor to the Digital Currency Initiative at the university’s fabled Media Lab. On Tuesday he was quick to emphasize his appreciation for Satoshi Nakamoto’s breakthrough 12 years ago and how distributed ledger technology has challenged central bank policy and the financial industry.
But he hastened to add that no innovation can live outside the law forever. And for all the breakthroughs in crypto, he said investors and consumers need protection from an unchecked marketplace.
“The market is rife with fraud and abuse and hucksters, and it’s a market that runs 24 hours a day, seven days a week,” he said. “Innovations challenging finance, that’s exciting, but if it’s going to last it has to be inside a public policy framework.”