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Great Potential, Great Obstacles for Blockchain

Great Potential, Great Obstacles for Blockchain
Written by publisher team

December. 23, 2021, 12:14 PM ET

SEC Chairman Jay Clayton in 2019.


Photo:

Erin Scott/Reuters

The opening article by former SEC Chairman Jay Clayton (“America’s Future Depends on Blockchain,” Dec. 17) is startlingly ironic, given the utter failure of the SEC under his leadership to embrace the innovation and potential of blockchain technologies and cryptocurrencies. Mr. Clayton stifled the cryptocurrency industry while in office, but is now calling on the government to facilitate the technology’s adoption.

The Director of National Intelligence wrote to Mr. Clayton at the time, urging him that regulatory certainty would allow US companies to compete against Chinese competitors. A group of bipartisan Congressmen wrote to Mr. Clayton on the same subject, noting that the SEC’s encryption status was “unsustainable”. Joseph Grundvist, a former Securities and Exchange Commission commissioner, cautioned against taking enforcement action against my company, Ripple, calling it “extremely problematic.”

In the US, we don’t have the regulatory clarity for the cryptocurrency market, which had a market capitalization of $3 trillion last month. The SEC continues to practice selective enforcement — picking winners and losers rather than setting clear regulatory guidelines. Innovation suffers for it. While I am pleased that Mr. Clayton now sees the important connection between cryptography, innovation and national security, his last act in his role was to initiate a misleading lawsuit against Ripple. He packed his bags and tried to turn off the lights on cryptocurrencies at the SEC.

Brad Garlinghouse

CEO of Ripple

San Francisco

Mr. Clayton is right about the quantum leap in financial efficiency that blockchains offer: Decentralized finance, or DeFi for short, is a set of financial products that are essentially self-executing blocks of code built on top of a global ledger. Instant settlements, 24/7 uptime, and end-to-end interoperability are on par with the trajectory of this new infrastructure.

But financial efficiency won’t do much to satisfy DeFi’s harshest critics. Take Senator Elizabeth Warren, who recently described DeFi as “the most dangerous part of the crypto world.” Mr. Clayton is not emphasizing the core qualities of DeFi that a progressive crusader like Ms. Warren should embrace: built-in transparency and financial inclusion.

Ms. Warren has made a career by documenting the moral hazard that still exists among America’s largest financial institutions. But if Wall Street is a black box, then the blockchain is an open book. Every part of financial activity – every transfer, loan and derivative – is auditable because it is “onchain”. Leverage can still build up, but not behind closed doors.

Most importantly, DeFi offers a viable path to broad financial inclusion. What the internet and smartphones did to access information, DeFi does to fintech. It enables underprivileged people to use and develop open, cheap and secure financial services.

The password for WAGMI cryptocurrency has become: “We will make it all.” As frightening as it may be, DeFi will make that promise a reality.

Benjamin Simon

Partner, Mechanism Capital

San Juan Puerto Rico

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It appeared on December 24, 2021, in print as “Blockchain: Big Potential, Big Hurdles”.

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