The U.S. Securities and Exchange Commission (SEC) has officially withdrawn a series of proposals tightening regulations in the crypto sector – a remnant from the tenure of former Chairman Gary Gensler.
– A controversial proposal is to expand the definition of "exchange" to encompass DeFi platforms. This move has faced strong opposition as it is seen as stifling innovation and paralyzing the decentralized ecosystem.
– According to experts at Paradigm, to build a reasonable legal framework for DeFi, the SEC cannot make patchwork solutions – it needs to start from scratch, with substantial consultation from the community.
– The SEC also withdrew its proposal requiring financial advisors to store crypto at licensed custodial institutions. Theoretically, this aims to protect investors. But in practice, it puts small companies in a difficult position – with only a few options being large banks that are cautious (or avoid) crypto.
The consequence? Reduced competition, elimination of opportunities for startups, and additional barriers for mid-sized and small asset funds to enter the market. Once again, intervention "for investor protection" becomes the main barrier to innovation.
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