David Hirsch, the chief of the SEC’s Crypto Assets and Cyber Unit, has just issued a sobering warning to the cryptocurrency sector, which has already come under intense scrutiny from the regulator in recent months.
In addition to Coinbase and Binance, the SEC has already filed lawsuits against other centralized exchanges and decentralized finance (DeFi) protocols, as stated by Hirsch during his speech at the Securities Enforcement Forum Central in Chicago on Tuesday.
He added that the SEC would “continue to bring those charges” against a number of other companies that functioned similarly to Coinbase and Binance.
SEC Issues a DeFi Crackdown Alert
Decentralised applications are also under attack, despite the fact that they function fundamentally differently from centralised exchanges like Coinbase and Binance.
Deployed directly onto a smart contract-enabled blockchain, like Ethereum, decentralised applications (dApps) are powered by smart contracts that are (typically) immutable.
DApps are open source and borderless (like the blockchains they operate on), and all transactions and activity that pass through them are visible to everyone on the blockchain by their very nature.
Hirsch acknowledged that despite the SEC’s increased enforcement efforts against the US crypto industry in the wake of the FTX tragedy in November 2022, the agency only has a finite amount of resources and cannot take on all non-compliant companies.
“There are a greater number of tokens in circulation—possibly around 20,000 to 25,000, based on my latest information—than the SEC or any regulatory agency can actively investigate. Moreover, there are several centralized platforms in existence, with some of them functioning as unregistered exchanges,” he commented.
SEC Slipping Behind
The SEC has already filed many high-profile lawsuits against important figures in the cryptocurrency business.
The agency filed a lawsuit against Ripple Labs for its $1.3 billion XRP coin issuance in 2020, but it now seems that the agency is losing the case after a judge determined earlier this year that Ripple’s XRP sales weren’t necessarily a security offering.
The results of its more recent cases against Binance and Coinbase will determine the regulatory environment for US crypto exchanges in the years to come. If the SEC gets its way, tokens will have to clear much tougher requirements before being listed on any US-based exchange.
Other than Ripple Labs, the SEC hasn’t directly pursued many crypto token issuers. However, the agency has claimed that significant tokens like Cardano (ADA), Solana (SOL), and Polygon (MATIC) are securities, casting doubt on the future demand of these currencies in the US.
Exchanges that wish to list these tokens will have to clear much more onerous compliance hurdles if the SEC prevails in its legal battles against Coinbase and Binance, where it is also contending that these tokens are securities.