The op-ed by former Securities and Exchange Commission Chairman
(“America’s Future Depends on the Blockchain,” Dec. 17) is staggeringly ironic, given the SEC’s abject failure under his leadership to embrace the innovation and potential of blockchain and cryptocurrency technologies. Mr. Clayton stifled the crypto industry while in office, yet now he calls for the government to facilitate the adoption of the technology.
The director of national intelligence wrote to Mr. Clayton at the time, urging that regulatory certainty would allow U.S. companies to compete against Chinese rivals. A bipartisan group of members of Congress wrote to Mr. Clayton on the same topic, noting the SEC’s crypto posture was “unsustainable.” Former SEC Commissioner
cautioned against taking an enforcement action against my company, Ripple, calling it “highly problematic.”
In the U.S., we don’t have regulatory clarity for the cryptocurrency market, which hit $3 trillion in market cap last month. The SEC continues to practice selective enforcement—picking winners and losers rather than setting out clear regulatory guidance. Innovation suffers for it. While I’m glad Mr. Clayton now sees the important relationship between crypto, innovation and national security, his last action in office was to initiate a misguided lawsuit against Ripple. He packed his bags and tried to turn the lights off on crypto at the SEC.
Mr. Clayton is correct about the quantum leap in financial efficiency that blockchains offer: Decentralized finance, or DeFi for short, is a suite of financial products that are essentially self-executing blocks of code built atop a global ledger. Instantaneous settlements, 24/7 uptimes and universal interoperability are par for the course of this new infrastructure.
But financial efficiency will do little to satisfy DeFi’s harshest critics. Take
Sen. Elizabeth Warren,
who recently called DeFi “the most dangerous part of the crypto world.” Mr. Clayton doesn’t emphasize the core qualities of DeFi that a progressive crusader like Ms. Warren ought to embrace: built-in transparency and financial inclusion.
Ms. Warren has made a career out of documenting the moral hazard that persists among America’s largest financial institutions. But if Wall Street is a black box, the blockchain is an open book. Every bit of financial activity—every transfer, loan and derivative—is auditable because it is documented “onchain.” Leverage can still build up, but not behind closed doors.
More important, DeFi offers a viable path to broad financial inclusion. What the internet and smartphones did for access to information, DeFi does for financial technology. It empowers underserved people to use and develop financial services that are open, cheap and secure.
The watchword of crypto has become WAGMI: “We’re all gonna make it.” Despite the fear mongering, DeFi will make this promise a reality.
Partner, Mechanism Capital
San Juan, Puerto Rico
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Appeared in the December 24, 2021, print edition as ‘Blockchain: Great Potential, Great Obstacles.’