Gary Gensler, the chairman of the Securities and Exchange Commission, believes centralization in the crypto market was founded on the idea of decentralization. He said this field has significant concentration among intermediaries in the middle of the market.
The SEC chair’s comments come before the annual meeting of the Securities Industry and Financial Markets Association. Gensler cautioned about the danger of centralization in traditional finance while taking a swipe at the crypto industry. He used the hourglass as an example to highlight that financial intermediaries as they process trillions of dollars worth of transactions, can disproportionately capture profits.
Gensler believes crypto exchanges function in this problematic manner. However, he did not pinpoint any particular exchange or platform by name. The chair believes there is a tendency for central intermediaries to benefit from scale, network effects, and access to valuable data. He said novel technologies can often assist in creating new forms of economic competition and unseating entrenched winners, but centralization quickly finds a way to re-establish itself in novel sectors. Gensler outlined that technological innovations repeatedly disrupt incumbent business models, and centralization manages to reemerge.
The SEC chair’s comments highlight the agency’s recent actions to curtail certain decentralized components of crypto and DeFi. The Treasury Department’s Office of Foreign Asset Control (OFAC), in August, sanctioned Ethereum coin-mixing tool Tornado Cash. It also blacklisted numerous wallet addresses associated with the service. It should be noted that Tornado Cash allowed users to keep their crypto transactions private by obfuscating otherwise publicly available transaction data. The Treasury attributed its decision to the platform facilitating money laundering and aiding terrorist groups. But several privacy advocates saw this move as the federal government has determined anonymity. This also deepened the differences between centralized crypto companies and decentralized projects and their supporters.