‘What are we waiting for’? SEC Commissioner Hester Peirce discusses how to move cryptocurrency regulation forward

The U.S. Securities and Exchange Commission is not a monolithic institution. Look no further than Hester Peirce (aka Crypto Mom), who is currently serving her second term as one of the five supervisory commissioners. In recent years, Peirce has earned a reputation as an advocate for cryptocurrencies and blockchain technology, writing countless dissenting opinions regarding the numerous lawsuits the SEC has taken against crypto protocols and companies.

To some extent, Peirce’s disagreements with SEC Chairman Gary Gensler stem from their different philosophical and political beliefs. Peirce, a Republican and member of the Federalist Society, believes government should have a limited role in regulating trade. While Gensler, who swims in Democratic circles, is often more difficult to define. While Gensler has seemingly evolving views on cryptocurrencies (having appeared as a blockchain advocate while teaching the topic at MIT), Pierce has remained steadfast in his support of economic innovation.

“It is a fundamental American principle that people are free to make choices. The government is not there to protect people from their own choices,” Peirce told CoinDesk in an interview. This view influences Peirce’s views on whether the SEC should block ETH spot exchange-traded funds (ETFs), prosecute U.S.-based exchanges like Coinbase and Kraken, and what role the agency should play in oversight of the cryptocurrency markets.

CoinDesk caught up with Commissioner Peirce ahead of Consensus 2024, where he is expected to speak in May, to discuss the SEC’s enforcement actions, his distaste for big banks, and where US regulation of cryptocurrencies first went wrong.

HI mom. To start simply, would you be able to describe the fundamental difference of opinion you have with SEC Chairman Gary Gensler?

It’s not an easy question.

To begin with, look, the opinions I represent and will reflect are my opinions, not necessarily those of the SEC or my fellow commissioners, so I can’t speak for anyone else on the commission.

Are you talking specifically about cryptocurrencies or the universe of issues?

Perhaps I wanted to broaden the scope of application. What are your key political or philosophical differences?

So in terms of philosophy, I’m of the mind that we don’t necessarily know what’s best for other people. We have our statutory mandates that we must implement. But within these mandates, we are often given discretion. And if we have discretion, my preference is to let market participants make a decision about what they want to do. Now, sometimes there’s a reason why we have to go in the middle of a transaction and say, “No, you can’t do that,” or “Yes, you can do that, but you have to do it this particular way. “But we better have a good reason to meddle in this transaction.

It is a fundamental American principle that people are free to make choices. The government is not there to protect people from their own choices. It is there to protect people if someone else hurts them, but not to make decisions about their lives for them.

You’ve been critical of big banks in the past, but you’ve also argued that the regulatory response to the Great Financial Crisis was misplaced. I wonder if this is somehow related to your interest in cryptocurrencies?

I think my interest in cryptocurrencies stems from a couple of things. First, I think it’s a good test for how we handle innovation, or maybe a bad test in the sense that I think we’re not passing it. Crypto came to us with many new players and many new ideas. I think we had to figure out how to work with these new players and figure out how they could do what they wanted in a way that was compliant, but also allowed them to move forward.

There is a connection in the sense that when I look at the financial crisis – a lot of people looked at it and came to different conclusions about the causes – one of the things that was happening was poor regulatory design. A regulatory plan that led everyone to make the same stupid mistake at the same time. One way to address this is to build resilience into the system, and having heterogeneity in the system is a good way to build resilience. There are some interesting concepts within cryptocurrencies that allow for greater decentralization of the financial system.

So yes, in that sense there is a connection. But do I think the decentralized future will replace centralized intermediaries in the financial system? My prediction would not be; people want to deal with a centralized intermediary. But I think there will be a role for decentralized finance. Maybe it’s in the background. Maybe it’s more than that. I predict that most people will access it through a centralized intermediary. I might be wrong.

You don’t have to answer this question, but do you hold cryptocurrencies?

Because I always work on these topics. I don’t and I wouldn’t even if I could. I feel like there would be a conflict. If you work on these problems, you basically can’t have cryptocurrencies. I speak only for the rules that apply to me.

A question from my publisher: Prometheum; What’s going on there? Is this an example of the SEC picking winners?

I will not speak to any particular entity. Good try.

That’s fair enough. Your Safe Harbor proposal is common sense, but in the years since you published it, I think it has become clear that perhaps three years is too short a time for decentralization of protocols. Solana, Cardano, and even Ethereum to some extent have centralized entities directing development: the non-profit organizations founded alongside the network. Do you think we should think about decentralization over a longer time horizon? Decades?

Again, decentralization is not an end in itself. It’s the right thing in certain circumstances. However, sometimes having a centralized entity is the right thing. We should all take a step back and think about what we are trying to achieve. And basically, what we need to get is the ability for people to know whether or not they’re dealing with a security, so that when they do something or sell something they understand whether it’s a securities offering.

They need to know this in the primary and secondary markets. So if we decide that some crypto assets are securities, or that it doesn’t make sense to change the rules, there is a sensible framework that makes sense for crypto assets. Does it make sense to establish some sort of transparency regime for centralized bodies? This is really a congressional decision. But we can’t even have these conversations at the SEC right now because the bottom line is to just apply exactly the same rules that apply to stocks and be done with it — and I don’t think that works.

But even just taking a step back and thinking about what we’re really trying to solve might take some of the pressure off the decentralization issue.

How closely do you or the other four commissioners work with the Enforcement Division? Do you suggest cases to argue about?

So just to give you an idea of ​​how things work from an application perspective. As with regulation, staff do the bulk of the work. They consider a rule and will propose it to us and we will evaluate it. Voting often takes place in an open, public meeting. With enforcement actions we also receive recommendations. Typically, staff will recommend authorizing an enforcement action and resolving it at the same time. So we often don’t see the case through to the end and aren’t involved in the merits of the matter. Then we will authorize the division to sue or we will authorize you to sue and settle with them on the same day. Most of our cases are resolved immediately. Voting occurs in a process called serietim, where we simply vote on documents, or we vote in a meeting where there is discussion, but such meetings, as you might imagine, are not open to the public.

So, in a sense, if there were a change in the presidential administration in the next election, then could the current regime of control continue, more or less, as it is?

I think these are great questions because the structure of the agency is a little strange. Strange in the sense that it’s not like many other agencies that have a single boss. But even though we are five commissioners, Chairman Gensler has the authority to set the regulatory agenda and the staff reports to him as well. The president can certainly give a push to the direction things go, but you’re right, it’s not like when a new president comes in all the existing oversight investigations stop. The agency is designed to move forward.

Would you accept the job if Trump or Tulsi were elected?

It’s not even on the radar.

Yes, I’m focused on The Now and trying to move us to a better place. I’ve been here for six years and it’s very disheartening to see that we haven’t gone down a productive path at all. For me it is inevitable that sooner or later we will have to embark on a productive path, so why not start now? What are we waiting for?

This isn’t a question about the present, but I’m curious how the agency has changed since your first two stints at the SEC in the early 2000s.

Over the years we have become progressively more prescriptive in our regulatory approach. One issue I raised in a speech last week is that we have become less willing to engage on some of the difficult issues with staff and the public. It was not a set of positive changes.

Is there any reason to believe or hope that the ETH ETF trial on the spot market will not play out similarly to what happened with the bitcoin ETFs on the spot market?

I can’t talk about it because we have some applications under consideration.

Do you think the DAO Report 2017 set cryptocurrency regulation on the wrong foot?

Yes I do it. Because I think the facts of the DAO report are different from the facts of most cryptocurrency offerings we see, right? The facts were unique. And I really don’t think that the legal analysis we applied to the reflection on tokens was useful in really getting to the heart of the matter.

So if I could rewind – I wasn’t here at the time of the DAO report, although I learned a lot in that time – I would change the way we approach things.

Well, again, since this is litigation, I don’t want to talk about the opinion of any particular judge. But as I said, in other contexts, when you think about an investment contract, whether it’s a digital asset or some other type of tangible asset, the asset itself is not the security itself. It’s when you offer that asset along with an investment contract that is what makes a security a security. It becomes the object at the heart of the investment contract. But you still have to think of these two things as distinct. Howey’s orange groves were not secured by themselves.

Your dissenting opinions are often quite astute. Was this your idea or your co-author Mark Uyeda’s idea? include a play in the ShapeShift document?

I can’t answer this question either.

Thanks again for your time.

Well, I appreciate you taking the time and I hope you have a great afternoon.

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