SEC Commissioner and cryptocurrency advocate Hester Peirce discusses regulation: I have been very frustrated over the past six years

Original Title: ‘What Are We Waiting for’? SEC Commissioner Hester Peirce Discusses Moving Crypto Regulation Forward

Author: Daniel Kuhn, Deputy Editor of Consensus Magazine

Translation: Debuy, Wu Says Blockchain

Hester Peirce, known as "Crypto Mom" for her fierce dissenting opinions, discussed how the SEC operates, why she wants to see cryptocurrency thrive, and how her "safe harbor" proposal would allow projects to decentralize.

The U.S. Securities and Exchange Commission is not a monolithic entity. Hester Peirce, also known as Crypto Mom, is currently serving her second term as one of five commissioners. Over the past few years, Peirce has become known as a defender of cryptocurrency and blockchain technology—she has written countless dissenting opinions regarding the SEC's many legal actions against crypto protocols and companies.

To some extent, the divide between Peirce and SEC Chair Gary Gensler stems from their differing philosophies and political beliefs. Peirce, a Republican and member of the Federalist Society, believes that the government should take a hands-off approach to business regulation. In contrast, Gensler, who often operates within Democratic circles, has a more elusive viewpoint. Although Gensler showed support for crypto while teaching blockchain at MIT, Peirce has remained steadfast in her support for economic innovation.

In an interview with CoinDesk, Peirce stated, "It is a fundamental American principle that people have the right to make choices. The government exists not to protect people from their own choices, but to protect them when others harm them, not to make life decisions for them." This perspective influences Peirce's views on whether the SEC should block spot ETH exchange-traded funds (ETFs), pursue domestic exchanges like Coinbase and Kraken, and what role the agency should play in overseeing the crypto market.

CoinDesk caught up with Commissioner Peirce ahead of the 2024 Consensus Conference, where she plans to speak about the SEC's enforcement actions, her disdain for big banks, and where U.S. cryptocurrency regulation has gone wrong for the first time.

Reporter: Hi, Mom (referring to Crypto Mom). Let's start with a simple question: can you describe the basic differences of opinion between you and SEC Chair Gary Gensler?

● That's not a simple question.

First, the views I represent and reflect are my personal views and not necessarily those of the SEC or my fellow commissioners, so I cannot speak for anyone else on the commission.

Are you talking specifically about crypto issues, or a range of issues?

Question: I think I might broaden the discussion. What are your fundamental political or philosophical differences?

● Philosophically—my view is that I don't necessarily know what is best for others. We have a statutory mandate that we must execute. But within those mandates, we are often given discretion. If we have discretion, my preference is to say, well, let market participants decide what they want to do. Sometimes we have to intervene in transactions and say, "No, you can't do that," or "Yes, but you must do it in this specific way." But we better have a very good reason to intervene in that transaction.

(Reference: SEC in 'Enforcement-Only Mode' for Crypto, Commissioner Peirce Says)

It is a fundamental American principle that people have the right to make choices. The government exists not to protect people from their own choices, but to protect them when others harm them, not to make life decisions for them.

Question: In the past, you have been critical of big banks, but you also believe that the regulatory response to the financial crisis went off track. I wonder if this relates to your interest in crypto?

● I think my interest comes from a few things. First, I see this as a good opportunity to test how we handle innovation—or perhaps a bad test, because I don't think we have passed it. Crypto has brought many new participants and new ideas. I think we should find a way to work with these new participants and find a way for them to do what they want to do in a compliant manner, but also allow them to move forward.

In a sense, this connects to how I view the financial crisis—many have studied it and drawn different conclusions about the causes—one of the things that was happening was poor regulatory design. A design that led everyone to make the same foolish mistakes at the same time. One way to address this is to build resilience into the system, and heterogeneity in the system is a good way to build resilience. There are some interesting concepts in crypto that allow for more decentralization in the financial system.

So, in that sense, there is indeed a connection. But do I think that a decentralized future will replace centralized intermediaries in the financial system? My prediction is no; people want to deal with a centralized intermediary. But I think decentralized finance will have a role. Perhaps in the background. Maybe more than that. I predict that most people will access it through a centralized intermediary. I could be wrong.

Question: You don't have to answer this, but do you hold any cryptocurrencies?

● Because I have been dealing with these issues. I do not, and even if I could, I would not. I feel that would be a conflict. If you are dealing with these issues, you basically cannot own cryptocurrencies. I'm just saying the rules that apply to me.

My editor Prometheum has a question: what is going on there? Is this an example of the SEC choosing winners?

I will not comment on any specific entity.

Question: That’s fair. Your safe harbor proposal is common sense, but in the years since you released it, I think it’s fair to say that perhaps three years is too short a time for protocols to decentralize. Solana, Cardano, and even Ethereum to some extent have centralized entities guiding development—nonprofits set up alongside the networks. Do you think we should consider a longer timeline for decentralization? Decades?

● Again, decentralization itself is not the goal. In some cases, it is the right thing to do. However, sometimes having a centralized entity is the right thing to do. We should all take a step back and think about what we want to achieve. Fundamentally, what we need to achieve is to let people know whether they are dealing with a security, so that when they do something or sell something, they understand whether it is a securities offering.

They need to know this in both the primary and secondary markets. Then, if we decide that certain crypto assets are securities, or that adjusting the rules makes no sense, then there should be a reasonable framework that makes sense for crypto assets. Does it make sense to set up some sort of disclosure regime for centralized entities? That is really a decision for Congress. But we can't even have those discussions at the SEC right now because the conclusion is just to apply the same rules that apply to stocks and be done with it—I just don't think that works.

But just taking a step back and thinking about the problems we are really trying to solve might alleviate the pressure on the decentralization issue.

Question: How closely do you or the other four commissioners work with the enforcement division? What cases do you suggest handling?

● Actually, this is just to give you an idea of how enforcement works. Like rulemaking, the staff does most of the work. They will consider a rule and propose it to us, and we will consider it. Votes usually happen in a public meeting. For enforcement actions, we also receive recommendations. Typically, the staff will recommend authorizing an enforcement action and resolving it at the same time. So we usually do not see the cases until the very end and are not involved in the core of the matters. So we either authorize the department to prosecute or authorize you to prosecute and settle with them on the same day. Most of our cases are resolved that way. Votes occur in a process called seriatim, where we just vote on the documents, or we discuss and vote in meetings, but those meetings, you might guess, are not open to the public.

Question: So in a sense, if there is a change in the presidential administration in the upcoming election, the existing enforcement mechanisms could more or less continue, right?

● I think those are good questions because the structure of the agency is a bit strange. It is odd in that it does not have a single head like many other agencies. But while we have five commissioners, Chair Gary Gensler does have the authority to set the agenda for rulemaking, and the staff reports to him. The chair can certainly push things in a certain direction, but you are right that when a new chair comes in, not all existing enforcement investigations will stop. The agency is designed to continue operating.

Question: If Trump or Tulsi were elected, would you take the job?

● I haven't even thought in that direction.

Question: No?

● Yes, I am focused on the present and trying to move us to a better place. I have been here for six years, and it is very frustrating to see that we have not gotten on a productive path at all. For me, we must get on a productive path sooner or later—so why not start now? What are we waiting for?

Question: This is not a question about now, but I am curious about what changes have occurred in the agency since your early tenure at the SEC in the early 2000s?

● Over the years, we have become increasingly prescriptive in how we approach rulemaking. One question I raised in a speech last week is that we have become less willing to discuss some difficult issues with the staff and the public. These are not a set of positive changes.

Question: Is there reason to believe or hope that the process for a spot market ETH ETF will not unfold the same way as the spot market Bitcoin ETF?

● I cannot talk about that because we are considering some applications.

Question: Do you think the 2017 DAO report incorrectly initiated crypto regulation?

● Yes, I think so. Because I believe the facts of the DAO report are different from the facts of most crypto products we see, right? The facts are unique. I just think that the legal analysis we apply to thinking about tokens does not help in truly solving the problem.

(Reference: SEC Blasts 'Purportedly Decentralized' DAOs in $1.7M Barnbridge Settlement)

So if I could do it over again—I was not there when the DAO report was issued, although I learned a lot during that time—I would change the way we handled things.

Question: Do you agree with Judge Failla's interpretation in the XRP case that tokens are not necessarily securities, but when you sell them to qualified investors, it is an investment contract?

● Again, because that is litigation, I do not want to discuss any specific judge's opinion. But as I have said in other contexts, when you consider an investment contract, whether it is a digital asset or another type of tangible asset, the asset itself is not a security. When you offer that asset along with an investment contract, that is what makes the security a security. It becomes the object of the investment contract. But you still need to view these two things as separate. The orange grove in Howey is not a security in itself.

Question: Your dissenting opinions are often quite artistic. Was it your idea or your co-author Mark Uyeda's idea to include a script in the ShapeShift filing?

● I cannot answer that question either.

Thank you again for your time.

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