Hester Pierce Warning About Rampant “Shadow-Centralization”

Hester Pierce from the U.S. Securities and Exchange Commission (SEC) is also known as the “Crypto Mom”. She has recently warned about the rampant “shadow-centralization” within the decentralized finance (DeFi) sector. On the 4th of August in a discussion that was streamed by The Defiant, she spoke with Chris Blec, the DeFiWatch founder. There she stated that DeFi and decentralized organizations are quite new concepts for the regulators. She added:

“If you want to be decentralized, you really need to be decentralized, and that is going to then put you in a different category from the perspective of regulators because that’s just not something that we’ve dealt with before.”

She continued saying, “If regulators can find a centralized part or group of people that they can grab hold of, they will grab hold of them. So I think it’s just good to be cautious about how you build things because, down the road, it could have regulatory implications.” In the discussion later, Chris Blec asked her about her opinions on what is the best route at present to develop decentralized protocols.

Furthermore, Chris asked her whether the founders should aim at reaching the same level of decentralization as Bitcoin or not. He also asked if they should begin to build “really cautiously and then run towards regulation” so that they can avoid a conflict with the law. To this, the commissioner of the SEC said that all the pre-existing regulations have been developed so that “any entity or person that is involved in the financial industry is probably going to come under at least one regulatory framework.”

Hester Pierce Continues…

Hester Pierce convinced the DeFi founders, who thought they might be involved in new activities outside the scope of existing legislation, to involve regulators and “see if there are other ways to meet the requirements.”

The Defiant event focusing on DeFi transparency – Reddit

“If you want to make a case that you’re something different than the CeFi or TradFi system, then you have to show that you’re doing something radically different, which from my perspective, requires decentralization.”

Pierce added, “If the trust is really coming from the code, that’s something very different than if the trust is coming from one company or a group of people.” The commissioner stated the fact that “shadow-centralization” is already existing in the DeFi sector. An opaque governance structure may lead to centralized control of the agreement, even if its marketing is under the banner of decentralization.

But, Hester Pierce persuaded the regulators that they should adapt to decentralized innovation by saying that “regulators need to do a better job of figuring out how to work with innovators.” She continues her discussion by saying, “That’s part of the reason our financial system is so concentrated. Because the only people who can afford to wait to get the approvals are people who have a lot of money already and who can have really good lawyers already.” When in the discussion she was asked the question of how Satoshi Nakamoto’s experience would look like if they would have engaged in the SEC before they were launching the Bitcoin, Hester said, “It’s 2021, it would be very likely that Satoshi would still be […] trying to get a no-action letter.”

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