Blockchain Association Calls on SEC to Classify DeFi as Infrastructure, Not Intermediary
Washington, D.C., — June 2024 — At a hearing before the House Committee on Financial Services on Wednesday, Summer Mersinger, senior counsel for the Blockchain Association, urged the U.S. Securities and Exchange Commission (SEC) to adopt a regulatory framework that treats decentralized finance (DeFi) protocols as open‑source infrastructure rather than traditional financial intermediaries.
Hearing Highlights
Mersinger’s testimony emphasized that DeFi platforms operate fundamentally differently from centralized service providers such as broker‑dealers, custodians, or exchanges. She argued that imposing the same compliance obligations—registration, ongoing reporting, and fiduciary duties—on protocol code could stifle innovation and undermine the neutral, permissionless nature of the technology.
“DeFi systems should receive appropriately tailored equivalent consideration by the SEC,” Mersinger said, “to preserve their role as open, neutral infrastructure while still allowing regulators to address activities that pose traditional financial risks.”
The Blockchain Association’s position aligns with a growing chorus within the crypto industry urging policymakers to differentiate between infrastructure (the underlying protocol layers that enable peer‑to‑peer transactions) and intermediary services (entities that facilitate, aggregate, or manage user assets).
Context and Regulatory Landscape
The SEC’s current enforcement approach largely hinges on the Howey test to determine whether an offering qualifies as a security. Recent actions against DeFi projects—most notably the 2023 enforcement notices to platforms such as Celsius and BlockFi—have raised concerns that the agency may be treating protocol-level code as a securities offering.
Industry participants argue that such an approach ignores the decentralized nature of many DeFi protocols, where no single party controls the code or the flow of funds. In contrast, traditional intermediaries have clearly defined governance structures and fiduciary responsibilities, making them more straightforward subjects for existing securities regulations.
Potential Impact of an Infrastructure‑Focused Approach
- Clarity for Developers – A formal recognition of DeFi protocols as infrastructure would give developers clearer guidance on compliance, reducing legal uncertainty and encouraging broader participation.
- Preservation of Innovation – Tailored rules could protect the permissionless ethos of DeFi, allowing new financial primitives (e.g., automated market makers, lending pools) to evolve without the overhead of full securities registration.
- Targeted Oversight – Regulators could focus on “front‑running” services, custodial wrappers, or tokenized securities that interact with the protocol, rather than the protocol itself.
- International Competitiveness – The United States risks ceding its leadership in blockchain innovation to jurisdictions that adopt more nuanced, technology‑friendly regulatory models.
Key Takeaways
- Regulatory Differentiation: The Blockchain Association is pushing for a distinction between decentralized protocols (infrastructure) and centralized service providers (intermediaries) in SEC policy.
- Testimony Focus: Summer Mersinger argued that a one‑size‑fits‑all compliance regime could undermine DeFi’s open, neutral architecture.
- Industry Momentum: The request reflects broader industry efforts to shape a more proportionate regulatory environment for decentralized technologies.
- Strategic Implications: An infrastructure‑centric regulatory model could preserve U.S. leadership in blockchain innovation while still allowing the SEC to monitor and mitigate traditional financial risks.
The committee’s next steps include reviewing the testimony and potentially holding follow‑up hearings to explore concrete regulatory proposals. As the dialogue between policymakers and the crypto sector intensifies, the outcome may set a precedent for how emerging decentralized technologies are governed in the United States.
This article was produced by The Defiant’s AI news system using publicly available sources, including a statement from the Blockchain Association’s Twitter account.
Source: https://thedefiant.io/news/regulation/blockchain-association-defi-infrastructure-sec-regulation-n6z0vx
