Yet again, Hester Peirce, aka Crypto Mom, talked about balancing innovation and regulation but this time in decentralized finance.
SEC Commissioner Hester Peirce, aka Crypto Mom, during the recent regulating the Digital Economy Conference, while talking about the recent market mania in the meme stocks, praised the decentralized finance (DeFi). She acknowledged that people love participating in hot markets, and as regulators, the mission is simple, capital formation and investor enrichment.
The goal of our market, she said, is to facilitate the flow of investors’ money into real companies that can serve other people’s needs and then return the money so investors can build wealth and technology has the potential to turbocharge capital markets’ this ability. But, for technology to have its maximum benefit, Peirce, who has long been a crypto advocate, said, “we will need to change our attitude.”
“Specifically, we tend to look at technological innovation in the markets with deep suspicion, and that mindset has to change,” she added. For this, embracing the technology is the only way to do it, and that regulators’ role is to “protect investors and markets, not incumbents.” In order to do the best for both investors and markets, DeFi “will provide a very good test,” said Peirce.
She defined DeFi as the nascent industry which is working on building an alternative to the legacy centralized financial system (“CeFi”) run through smart contracts rather than financial intermediaries. Instead of counterparties, its users trust in smart contracts. She said in her speech,
- “Although a work in progress with all the growing pains and rough edges that implies, DeFi’s promises of democratization, open access, transparency, predictability, and systemic resilience are alluring.”
As such, regulators need to provide both legal clarity and the freedom to experiment so that it can compete with CeFi, she wrote. Not to mention, increased participation in markets propelled by technology is beneficial for the markets themselves.
Besides using technology for transparency, it can be used for real-time settlement, she said, echoing Robinhood CEO’s call and pointing out how crypto transactions actually settle quickly and effectively without a central counterparty.
“The digital economy does pose some new regulatory challenges, but it also gives us new tools to meet those challenges,” concluded Peirce, adding, welcoming its potential has high payoff,
- “A successful regulatory framework for the digital economy will unleash its ability to empower individuals to build better futures for themselves, their families, and their communities.”