SEC Commissioner: Regulate the Custodians, Not the Code

SEC Commissioner Hester Peirce posited that securities regulation should not reach neutral blockchain infrastructure, open-source code, or non-custodial DeFi tools, and should instead apply to centralized actors that hold or control other people's securities and funds.

Speaking at the IC3 Blockchain Camp at Princeton University Ms. Peirce offered a set of principles to guide how securities laws should apply to crypto. She first described publishing code as protected speech under the First Amendment, asserting that developers who write open-source software for others to use should not have to register with the SEC. She argued that blockchains are general-purpose technology like the internet, and that the SEC is not a general-purpose infrastructure regulator. She said firms that merely process data through neutral, non-discretionary execution logic should not be treated as securities market participants. By contrast, she argued that centralized "onchain CeFi" (centralized finance) that takes custody of, or exercises discretion over, customer assets is "fair game" for securities regulation, though the rules may differ from those for traditional finance.

Ms. Peirce reported that the SEC's Crypto Task Force issued a temporary statement on user interfaces used to prepare crypto asset securities transactions, and pointed to a planned innovation exemption that would permit onchain trading of NMS stock. She said she and Chair Paul Atkins had urged the SEC to reconsider key definitions, including those of "exchange" and "broker."

She also urged developers to address risks themselves rather than wait for regulation.