The U.S. Securities and Exchange Commission’s (SEC) war on crypto could now engulf stablecoins and decentralized finance (DeFi), argued Berenberg in a June 21 report. The recent regulatory crackdown by the SEC has painted an image of the agency being exceedingly harsh on the crypto industry. If the speculation by Berenberg proves accurate, the impact on the industry could be immense.
SEC Could Target Stablecoins and DeFi Next
The investment bank, Berenberg, argued that the two stablecoins with the most significant market cap, Tether (USDT) and USD Coin (USDC), along with DeFi protocols, could be the next victims of the agency. Additionally, they can be forced to comply with regulations.
The financial watchdog of the United States shook the crypto industry with subsequent lawsuits against Coinbase and Binance between June 5 & 6, 2023. The suits cited that the exchanges violated federal securities laws. The agency also labeled a significant number of altcoins as securities.
The crypto community argues that with these actions, the agency is trying to bring the crypto industry under their jurisdiction. Billionaire Mark Cuban argued that the current rules are complex and hard to follow. Coinbase even had to take legal help to force regulations from the agency.
Experts argue that if the regulatory agency wish to subdue the potential of DeFi protocols, that serve as a goto alternative amidst regulatory chaos – analyst Mark Palmer hints that the agency could target stablecoin, as they serve as the backbone of decentralized finance.
Berenberg argues that the SEC might weaken the DeFi ecosystem if the assumption proves accurate. Berenberg argued that if the agency sues USDC, Coinbase’s revenue will suffer heavily as a result. In Q1 2023, the exchange generated a net revenue of $199 million through interest income earned by USDC reserves.
Regulatory Crackdown and Aftereffects
On June 7, 2023, Senator Cynthia Lummis argued that the financial watchdog failed to provide a set of regulations for the crypto industry to follow. Additionally, the digital asset exchanges could be more precise regarding the registration process. The agency is trying to prove cryptocurrencies are securities but it still needs to provide guidelines differentiating securities from commodities.
My statement on the SEC suing Coinbase, inc. https://t.co/5KNEM0IPSV pic.twitter.com/EgRIxrIcjj
— Senator Cynthia Lummis (@SenLummis) June 6, 2023
The two major agencies, the Securities and Exchange Commission and the Commodities and Futures Trading Commission (CFTC) are at war to bring the digital asset industry under their jurisdiction. The issue lies in the classification: if they are graded as commodities, CFTC will govern them, and if categorized as securities, it will fall under the jurisdiction of the SEC.
Looking at the market conditions impacted by regulatory actions, U.S. lawmakers sprung into action on June 12, 2023. Rep. Warren Davidson introduced the SEC Stabilization Act in the U.S. House of Representatives. The bill seeks tough reforms to the Securities and Exchange Commission, along with replacing the current chair Gary Gensler.
Although it is still speculation whether the agency will act against stablecoins or the DeFi ecosystem, such an act would have devastating consequences for the industry as a whole
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/06/22/the-sec-could-target-stablecoins-and-defi-next-berenberg/