In a speech on Monday, Gary Gensler, the chair of the Securities and Exchange Commission, criticised what he perceived to be the excessive control held in the market by centralised cryptocurrency exchanges.
Prior to the annual meeting of the Securities Industry and Financial Markets Association, a well-known trade association that represents securities firms, banks, and asset managers, Gensler made a number of remarks. These remarks mainly centred on encouraging competition among equity market makers. However, the SEC chair made a point to mention the crypto industry in passing while simultaneously raising concerns about the risks of centralization in traditional finance.
Gensler explained how financial intermediaries can unfairly collect profits given their favourable location at the neck of the hourglass processing trillions of dollars worth of transactions using the analogy of sand pouring through an hourglass.
“We’ve even seen centralization in the crypto market, which was founded on the idea of decentralization”
Then, without naming any specific exchanges by name, he stated that he thinks a number of bitcoin exchanges operate in this problematic way. In addition, Gensler noted that while new technologies frequently help to foster new types of economic competition and unseat established leaders, centralization quickly finds a way to re-establish itself in novel sectors. This statement appears to be a reference to blockchain technology.
“Though technological innovations repeatedly disrupt incumbent business models, centralization still tends to reemerge”
Given the recent steps made by government agencies to restrict some of the purportedly decentralised aspects of crypto and DeFi, Gensler’s remarks, in particular his condemnation of the rise of centralization in the crypto ecosystem, are particularly noteworthy.
Decentralised autonomous organisations (DAO) are the target of an ongoing, innovative lawsuit brought by the Commodities and Futures Trading Commission (CFTC), which seeks to hold the DAO’s whole membership accountable for the outcomes of all DAO-wide votes. If the lawsuit is successful, DAOs, the organisational cornerstone of crypto’s decentralisation movement, may no longer be used by crypto initiatives as an alternative to centralised corporation structures.