Full text of the US SEC Chairman’s speech: Satoshi Nakamoto’s innovation is true; the legislative focus is on transaction lending and DeFi
The following is the speech of US SEC Chairman Gary Gensler at the Aspen Security Forum, published on August 3:
thanks for your introduction. It is great to join the Aspen Security Forum.
As usual, I would like to point out that my views come from myself, and I am not speaking on behalf of the committee or the staff of the SEC.
Some people may wonder: What is the relationship between the SEC and the encryption industry?
Also, why do organizations like the Aspen Security Forum invite me to talk about the intersection of the encryption industry and national security?
Let me start from the beginning.
It was Halloween night in 2008. During the financial crisis, Satoshi Nakamoto published an eight-page paper on the cypherpunk mailing list that has been managed by cryptographers since 1992.
Satoshi Nakamoto-we still don’t know who she, he or they are-wrote: “I have been working on a completely peer-to-peer new electronic cash system with no trusted third parties.”
Satoshi Nakamoto solved two mysteries that have plagued cryptographers and other technical experts for decades: first, how to transfer valuable things on the Internet without a central intermediary; and how to prevent valuable numbers The “double spend” of tokens.
Subsequently, his innovation promoted the development of encrypted assets and underlying blockchain technology.
Based on Satoshi Nakamoto’s innovation, about ten years later, the types of encrypted assets have rapidly expanded. As of Monday, the asset class is said to be worth approximately US$1.6 trillion, of which 77 tokens are worth at least US$1 billion each, and 1,600 tokens have a market value of at least US$1 million.
Before joining the SEC, I was fortunate to be engaged in research, writing and teaching at the intersection of finance and technology at the Massachusetts Institute of Technology. This includes courses on crypto finance, blockchain technology and currencies.
In this work, I began to believe that, despite a lot of hype disguising the truth in the field of encryption, Satoshi Nakamoto’s innovation is real. In addition, it has been and will continue to be a catalyst for changes in the financial and monetary fields.
The core of Satoshi Nakamoto is trying to create a form of private money without a central intermediary, such as a central bank or a commercial bank.
We are already living in the era of digital public currencies-U.S. dollar, euro, pound sterling, yen, renminbi. If this was not obvious before the pandemic, it has become very clear in our growing number of online transactions over the past year.
This kind of public legal tender implements the three functions of currency: value storage, accounting unit and medium of exchange.
However, no one kind of encrypted asset can fully satisfy all the functions of currency.
First, encrypted assets provide digital and scarce tools for speculative investment. Therefore, in this sense, it can be said that they are highly speculative stores of value.
These assets are not used as accounting units.
We also haven’t seen encryption used as a medium of exchange. As far as its use is concerned, it is usually to circumvent anti-money laundering, sanctions, and tax laws. As we saw in the Colonial Pipeline recently, it can also be ransomware through ransomware.
Decades ago, with the advent of the Internet era and the transition from physical currency to digital currency, countries around the world placed various public policy goals on our digital public currency system.
As far as policy is concerned, I am technology neutral.
Personally, if I am not interested in how technology can expand financing channels and promote economic growth, I would not go to MIT.
But I am by no means neutral in public policy. With the emergence of new technologies, we need to ensure that we are achieving our core public policy goals.
In the financial sector, this is about protecting investors and consumers, preventing illegal activities, and ensuring financial stability.
So how does the US Securities and Exchange Commission (SEC) adapt to all this?
The mission of the US Securities and Exchange Commission (SEC) consists of three parts-protecting investors, promoting capital formation, and maintaining a fair, orderly and efficient market between the two. We are also concerned about financial stability. But our core is to protect investors.
If you want to invest in a digital, scarce, and speculative store of value, it doesn’t matter. For thousands of years, well-meaning actors have been speculating about the value of gold and silver.
At present, we just don’t have enough investor protection in terms of cryptocurrency. Frankly speaking, it’s more like the Wild West at this time.
This asset class is rife with fraud, scams, and abuse in some applications. There is a lot of hype about how crypto assets work. In many cases, investors cannot obtain strict, balanced and complete information.
If we do not solve these problems, I worry that many people will be harmed.
First, many of these tokens are offered and sold as securities.
It’s actually very clear in this regard. In the 1930s, Congress established the definition of securities, which included approximately 20 items such as stocks, bonds, and notes. One of them is an investment contract.
Over the next ten years, the Supreme Court adopted the definition of investment contract. The case stated that an investment contract exists when “a person invests his own money in a common enterprise and expects to obtain a profit entirely from the efforts of the initiator or a third party”. The Supreme Court has repeatedly reiterated this Howey Test.
In addition, this is just one of many ways we determine whether a token must comply with federal securities laws.
I think Jay Clayton, the former chairman of the U.S. Securities and Exchange Commission, said very well in his testimony in 2018: “As far as initial coin products or digital assets such as ICOs are securities-I believe every All ICOs are securities-we have jurisdiction and our federal securities laws apply.”
I found myself agreeing with Chairman Jay Clayton’s views. Generally speaking, people who buy these tokens are looking forward to profit, and a small group of entrepreneurs and technical experts stand up to cultivate these projects. I believe that we now have an encrypted market, and many of the tokens may be unregistered securities without disclosure or market surveillance.
This makes prices vulnerable to manipulation. This makes investors vulnerable.
Over the years, the U.S. Securities and Exchange Commission (SEC) has taken dozens of actions in this regard, giving priority to token-related cases involving fraud or other significant damage to investors. We have not lost the case yet.
In addition, many platforms actively provide crypto tokens or other products that are priced compared to the value of securities and operate like derivatives.
There is no doubt: it does not matter whether it is a stock token, a stable value token backed by a security, or any other virtual product that provides comprehensive exposure to the underlying security. These products are subject to securities laws and must operate within our securities system.
I have urged employees to continue to protect investors in the event of unregistered securities sales.
Next, I want to discuss crypto trading platforms, lending platforms and other “decentralized finance” (DeFi) platforms.
The world of crypto finance now has platforms where people can trade tokens and other places where people can lend tokens. I believe that these platforms can not only involve securities law; some platforms may also involve commodity law and banking law.
There are more than 50 tokens on a typical trading platform. In fact, the number of many tokens far exceeds 100. Although the legal status of each token depends on its own facts and circumstances, for 50 or 100 tokens, the probability of zero securities on any given platform is very small.
In addition, unlike other trading markets where investors trade through intermediaries such as the New York Stock Exchange, people can trade on cryptocurrency trading platforms without a broker — 24 hours a day, 7 days a week, from all around the world.
In addition, although many overseas platforms say that US investors are not allowed to enter, there are allegations that some unregulated foreign exchange transactions facilitate the transactions of US traders who use virtual private networks (VPNs).
The American public buys, sells, and borrows cryptocurrencies on these trading, lending, and DeFi platforms, but there is a major gap in investor protection.
There is no doubt: if there are securities on these trading platforms, according to our law, they must be registered with the committee unless they meet the exemption conditions.
There is no doubt: if the lending platform provides securities, it also falls under the jurisdiction of the US Securities and Exchange Commission.
Next, I want to switch to stable-value coins, which are encrypted tokens linked to the value of fiat currencies.
Many of you have heard of Facebook’s efforts to build a stablecoin called Diem (formerly known as Libra).
Due to the global influence of the Facebook platform, this has attracted a lot of attention from central bankers and regulators. This is not only due to general policy and concerns about encryption, but also due to Diem’s potential impact on monetary policy, banking policy, and financial stability.
However, what viewers may not understand is that our current stablecoin market is worth US$113 billion, including the four major stablecoins-some of which have been in existence for seven years.
These stablecoins are embedded in crypto trading and lending platforms.
How do you trade cryptocurrency? Generally speaking, there will be people using stablecoins.
In July, nearly three-quarters of transactions on all crypto trading platforms occurred between stablecoin and other tokens.
Therefore, the use of stablecoins on these platforms may help those seeking to evade a series of public policy goals related to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, etc. This also affects our national security.
In addition, these StableCoins may also be securities and investment companies. To a certain extent, we will apply the “Investment Company Act” and other federal securities laws to the comprehensive protection of investors for these products.
I look forward to working with colleagues in the President’s Financial Markets Working Group on these issues.
Next, I want to turn to investment tools that provide exposure to crypto assets. This investment vehicle already exists, the largest of which has been in existence for eight years and is worth more than 20 billion U.S. dollars. In addition, many mutual funds invest in Bitcoin futures on the Chicago Mercantile Exchange (CME).
I expect to submit documents related to Exchange Traded Funds (ETF) in accordance with the Investment Company Act (the ’40 Act). When combined with other federal securities laws, the ’40 Act provides important investor protections.
In view of these important safeguards, I look forward to staff reviewing these applications, especially if these applications are limited to CME-traded Bitcoin futures.
The last policy area is related to the custody of encrypted assets. The U.S. Securities and Exchange Commission (SEC) is seeking comments on the crypto custody arrangements of broker-dealers and investment advisors. Custody protection is the key to preventing investor assets from being stolen, and we will seek to maximize regulatory protection in this area.
Before I finish speaking, I want to point out that we have taken and will continue to take our authority.
Certain rules related to crypto assets have been properly resolved. The test to determine whether an encrypted asset is a security is clear.
However, there are some gaps in this area: we need more congressional authorization to prevent transactions, products, and platforms from falling into regulatory loopholes. We also need more resources to protect investors in this growing and volatile industry.
We are ready to work closely with Congress, the government, our regulatory counterparts, and our partners around the world to close some of these gaps.
In my opinion, the focus of legislation should be on crypto trading, lending and DeFi platforms. Regulators will benefit from additional overall powers to set rules and attach guardrails to crypto trading and lending.
At present, most areas of the cryptocurrency field are outside rather than operating within the regulatory framework that protects investors and consumers, prevents illegal activities, ensures financial stability, and protects national security.
Standing across the middle is not a sustainable place. For those who want to encourage cryptocurrency innovation, I want to point out that throughout history, financial innovation will not flourish outside of our public policy framework.
The core of finance is trust. The core of market trust is investor protection. If this field is to continue, or to realize its potential as a catalyst for change, we better incorporate it into the public policy framework.
thank you. I look forward to your questions.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/full-text-of-the-us-sec-chairmans-speech-satoshi-nakamotos-innovation-is-true-the-legislative-focus-is-on-transaction-lending-and-defi/
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