The status of decentralized finance (DeFi) could finally be weighed in on by the U.S. Securities and Exchange Commission (SEC), according to a report from CoinDesk Monday (Feb. 14).
Several legal professionals have said some recent events could lead to a SEC ruling. The DeFi sector is worth around $211 billion and has so far been unregulated.
In January, ZachXBT, an on-chain sleuth, found that a treasury manager for DeFi protocol Wonderland was convicted felon Michael Patryn, who was co-founder of a fraudulent Canadian crypto exchange called QuadrigaCX.
Patryn had been going by the name “Sifu.” He and Wonderland founder Daniele Sestagalli had become known for aggressively leveraging the Protocol Controlled Value (PCV) tool, which is a term for “the amount of funds the treasury owns and controls.” The Wonderland treasury has over $700 million, down from its $1 billion-plus peak.
Patryn’s unmasking was an example for many people of why the sector should not work with centralized intermediaries, and this case may be the one the SEC has been looking for.
“If you’re the SEC, this is probably one of the better opportunities to get some precedent on the books that would at least let you start clawing into DeFi,” Collins Belton, a managing partner at Brookwood P.C., said in an interview with CoinDesk.
Belton said there’s likely to be new regulations on the PCV front, which will look into “whether they’re dealing with a securities instrument, or a vehicle that needs to be regulated under the Investment Company Act.”
A recent Senate hearing could see more rulings come down on DeFi, PYMNTS wrote.
Read more: Senate Hearing on Digital Assets May Test Role of CFTC and DeFi
The U.S. Senate Committee on Agriculture, Nutrition and Forestry held a hearing Feb. 9 which looked into the risks of cryptocurrencies and other digital money and whether new regulation is needed.
The committee also had concerns regarding DeFi protocols, which don’t really have a intermediary or central system to process transactions. There were “still questions” about who’s responsible for monitoring the DeFi markets for fraud and manipulations.
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