SEC’s new crypto enforcers are coming for DeFi, lawyers say

The Securities and Exchange Commission’s decision to beef up its cryptocurrency enforcement staff could signal new worries for digital asset exchanges and others in the industry, as the agency broadens its view of whether some cryptocurrencies are securities.

The agency said last month that it will add 20 enforcement positions dedicated to crypto, boosting the total enforcement staff focused on digital assets to 50. Those tracking the development say the agency will delve deep, looking for violations among a crop of startup ventures. 

More enforcement is definitely coming, experts said, and the SEC has plenty of potential targets, including non-fungible tokens, stablecoins and platforms that might come under the agency’s authority if they trade digital tokens that are securities.

Ian McGinley, a partner at Akin Gump Strauss Hauer & Feld LLP, said he expects special scrutiny on one of the newest areas of digital assets: decentralized finance platforms, called DeFi for short. These ventures often use the decentralized structure to establish peer-to-peer markets, in which users engage in financial transactions with other parties directly, without an intermediary such as a stock exchange or bank. 

He pointed out that SEC Chairman Gary Gensler has already said the agency is examining them. A small number of DeFis handle much of the total activity in the sector. According to Gensler, the top five DeFi platforms account for about 80 percent of the total trading on all platforms.