The head of the Securities Commission has criticised the crypto industry for centralisation. Why?
The Chairman of the US Securities and Exchange Commission (SEC) addressed the annual meeting of the Securities Industry and Financial Markets Association. This is a prominent trade group representing securities firms, banks and asset managers. Gensler devoted a large part of his report to the crypto industry – he called it overly centralised because of the growing influence of large crypto exchanges. Is this really the case? We tell you more about the event.
The day before, the cryptocurrency world did feel centralized and censored. In this case, we are talking about Etherium, which switched to a new Proof-of-Stake consensus algorithm in mid-September.
Chart of the ETH Etherium exchange rate over the past year
As a result, it turns out that many validators on the network are using a software platform that, while not allowing transactions from the sanctioned cryptocurrency mixer Tornado Cash. Consequently, users of this platform are essentially experiencing problems with transactions – and this is what censorship is all about. Read more about the important situation in a separate piece.
Are cryptocurrencies centralised
Here’s one of Gensler’s quotes, published by news outlet Decrypt. In it, the regulator’s representative shared his view on what’s happening.
We are even seeing centralisation in the cryptocurrency market, which was based on the idea of decentralisation. In fact, there is a significant concentration of intermediaries in the digital asset ecosystem itself.
Note that such comments are fairly typical of bearish trends in the cryptocurrency industry. Typically, it is periods of downturn in the coin market that are used to criticise digital assets and damage their reputation. That said, such remarks from a Securities and Exchange Commission spokesperson sound strange, because in fact, it is the agency that in one way or another hinders the development of the blockchain industry. Yet over the years, the SEC has failed to create clear regulations for local entrepreneurs to follow when setting up companies.
SEC head Gary Gensler
The head of the US Securities and Exchange Commission compared the cryptosphere to an hourglass. At their narrowest, there are large cryptocurrency companies that handle trillions of dollars in transactions and take the lion’s share of profits. That is, of the position among all market players is the dominant one.
Gensler believes that most crypto exchanges operate on this model, although he would not name specific platforms.
There is a tendency for centralised crypto intermediaries to benefit from scale, network effects and access to valuable data.
Top 5 centralised crypto exchanges according to Coingecko
The SEC chairman then added, clearly alluding to blockchain technology, that while new concepts can often help create innovative forms of economic competition and displace entrenched favourites in the market, centralisation is quickly finding a way to reclaim itself in new sectors. He continues.
Even though technological innovation has repeatedly disrupted existing business models, centralisation still tends to revive.
Overall, Gensler’s comments, especially his critique of the rise of centralisation in the supposedly decentralised cryptocurrency ecosystem, are particularly noteworthy. Over the past few months, US regulators have increasingly begun to act on various restrictions on the decentralised finance sector and crypto in general.
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For example, in August, the US Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on cryptomixer Tornado Cash and blacklisted wallet addresses associated with the service. Tornado Cash allowed users to keep their cryptocurrency transactions private by “mixing” them with each other. For many privacy advocates, the move was a sign that the government had in fact declared war on the independence of cryptocurrency users’ personal data.
Tornado Cash
What has happened has also deepened the rift between centralised cryptocurrency companies and decentralised start-ups. Many of the former have begun to actively enforce sanctions, i.e. blacklisting wallets associated with Tornado Cash. At the same time, some decentralised platforms have not been proactive in imposing such restrictions.
A prime example is Circle, the company behind the USDC stablecoin issue. It followed OFAC sanctions and froze all USDC in its blacklisted wallets. Moreover, it happened even without the request of the body’s management, while the USDT issuing company did not do the same.
Some of the Circle blacklisted addresses associated with Tornado Cash
Overall, however, Gensler’s comments look quite comical when comparing crypto and the traditional economy. Digital assets can indeed give much more freedom to their owners than the average bank can boast. The SEC’s attempts to regulate the crypto market based on laws dating back to the last century also look bad in this light.
We believe that the cryptocurrency world does have enough centralised venues like exchanges, wallets and other services. At the same time, anyone can avoid interacting with them by using a hardware wallet and being fully responsible for the safety of their own coins. Therefore, the SEC head has no right to blame the industry for excessive centralization - including the fact that the agency under his leadership is not making the regulation of the coin niche clear.
What do you think about that? Share your opinion in our Millionaire Cryptochat. There we will discuss other important developments from the world of blockchain and decentralisation.
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