Gary Gensler, the Chair of the US Securities & Exchange Commission, has published an opinion article explaining the need to bring all crypto ventures under the legal lens. The emphasis is on the importance of bringing crypto ventures within the legal bounds for the objective of protecting investors and the market.
The traditional market has functioned centrally with the concentration of authority and interconnectedness. Cryptocurrency challenged that when Bitcoin gained traction in the market. Decentralization was, and is still being, promoted widely with the focus on trusting exchange platforms with the assets – funds invested.
Disclosures and compliance are often not met, putting investors at great risk of losing money. Considering the fact that a lot of crypto ventures have gone bankrupt in the recent month – FTX, for instance – there should not be any doubt that there is a dire need to ensure security for investors and their funds.
It has trusted, though non-compliant, intermediaries, says Gary Gensler, on the grounds that exchange platforms shy away from coming under the boundaries set by the SEC and federal securities laws. Lending and staking services can be categorized under securities law.
Also, a lot of pieces are not disclosed even though they deal with the element of investing assets, utilizing them when under custody, and executing trades. However, to reiterate, these functions remain under the blanket, along with the rules that protect investors from manipulation.
Gary has underlined that inventors and markets come under the security provided by crypto ventures, and their tokens come under the compliance of laws that govern securities exchange. Another factor underlined by the Chair is that issuers should file registration statements to disclose the required information.
Some crypto ventures say that the laws are unclear rather than admit that they do not have sufficient protection for investors, a rephrased statement by Gary that could be true.
There is a split within the community, claiming that a lot of pointers in the proposals put decentralization at risk. In other words, the core basis of cryptocurrency and its existence is put under threat.
However, the SEC remains clear on the following points:
- Cryptocurrencies listed must be registered with the SEC
- Cryptos are likely to be categorized as securities
- Platforms involved in lending & staking fall under the umbrella of securities law
The SEC is also clear on the stand that the ventures should share the account of assets they are holding. Investors are required to let go of the control over their assets – not keys or coins – for some time, making it more important to put up disclosures regarding the actions that would be taken in case of bankruptcy or financial distress.
For now, it has been proposed that assets that are invested with advisors should be custodied with custodians who are qualified to do so. Some portions are also backed by the cases of FTX and Terraform, where their respective founders have been charged with fraud.