SEC’s Hester Peirce gives her lessons for the crypto industry

In a conference speech last Friday, Commissioner Peirce gave a speech in which she recommended that the crypto industry take onboard the lessons learnt so far.

Commissioner Hester Peirce spoke at the Digital Assets at Duke Conference in Washington recently, and she had much advice for those who were building out the cryptocurrency industry.

Lessons for crypto

The main lesson she wanted to impart was to say that crypto shouldn’t wait for the regulators to sort it out. Instead, people who promoted the industry would do better to “root out harmful practices and encourage good behaviour”.

Even as a regulating commissioner, Hester Peirce advised that regulatory solutions were more likely to be “inflexible”, and that they shouldn’t be used as a first resort. She believed rather that voluntarily imposed solutions could be far more effective given that those imposing them understood their industry far better than the regulator.

Her second piece of advice was to remember the actual point of crypto, which wasn’t trying to drive up prices or lending tokens to others to trade with. She said that the point was to solve various problems, and mentioned some of the multitude of use cases such as:

“smart contracts, payments, provenance, identity, recordkeeping, data storage, prediction markets, tokenization of assets, and borderless human collaboration.”

Thirdly, she suggested that each blockchain, crypto asset, or project should be taken on its own merits, and talking about it as just crypto obscured the important differences.

Fourth, she recommended that all new protocols be tested very carefully before release into public use, given that “disastrous consequences” could otherwise ensue. 

Fifth, the commissioner advised that people be extremely careful when dealing with any centralised crypto entities, and should take the same precautions as with any non-crypto company. By the same token, she suggested that crypto companies be careful to keep the trust that was invested in them by the public.

Sixth, Pierce laid out a list of lessons from traditional finance that were applicable to crypto. Doing due diligence on counterparties and the level of risk they would expose an investor to was highlighted as very important.

An honest summation of the SEC

While agreeing with Gary Gensler, chairman of the SEC on several important issues confronting the agency, one incredibly refreshing part of Commissioner Peirce’s speech was her extremely candid summation of other issues that concern the SEC. She stated her view that the SEC interpretation of the Howey test was “askew”, and said the following on the SEC’s general approach to crypto:

“We tell people to come down to the office to talk to us about their projects, plug the information they give us into our proprietary security-identifying algorithms, and then send the people home with a court date. Hardly a reasonable way forward, and one that results in what one lawyer has dubbed “regulation by anxiety.” Operating in such an opaque environment is very stressful for law-abiding people.”

A counter-voice in the SEC

It cannot be argued that Commissioner Pierce’s views on crypto are very refreshing. She has always let it be known that she would retain her independent thought and therefore she is an excellent foil to Gary Gensler, the chairman of the SEC.

Given the importance of crypto, and the likelihood that solutions for many issues in many areas of industry can be found here, it is a relief that someone of Hester Peirce’s neutrality and good sense can be found in the regulatory space.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.