US SEC Commissioner: DeFi must solve the problems of transparency and anonymity

The Global Blockchain Business Council today released the first issue of volume one of the International Journal of Blockchain Law (IJBL). The Commissioner of the US Securities and Exchange Commission (SEC) Caroline Crenshaw wrote the opening article discussing the role of DeFi in the encryption and regulatory ecosystem.

In the article, Caroline Crenshaw emphasized the benefits of decentralized finance and warned of the dangers of failing to adopt a protective regulatory framework.

Crenshaw outlined her belief that the DeFi community must address transparency and anonymity issues while complying with SEC rules:

“In the brave new DeFi world, to date, regulatory frameworks that provide important protections in other markets have not been widely adopted.”

When talking about the lack of transparency, Crenshaw said that DeFi lacks market protection, which “results in a two-tier market where professional investors and insiders get super high returns.”

Although the code of most DeFi projects is open source and all transactions are recorded on the chain, she believes that retail investors are at a disadvantage compared to professional investors, who have the resources to audit the code and development team.

Crenshaw also highlighted concerns about the link between anonymity and market manipulation in the article. When market participants operate anonymously, she believes it is difficult to track and mitigate manipulation through the use of robots and collusive transactions. She said that investors are often the most vulnerable to losses due to market manipulation, because normal signals such as trading volume and momentum become unreliable.

In addition, she believes that the DeFi project should have a public discussion with the SEC to find a solution to the dilemma of how to comply with the existing rules anonymously.

The DeFi field has historically touted the ability to remain anonymous as a feature rather than a burden for participants.

Crenshaw wrote in the article, ” I think most retail investors turn to DeFi not because they seek greater privacy; they are seeking higher returns than other investments. “

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