Gary Gensler, chair of the Securities and Exchange Commission, took yet another shot at the crypto industry in a speech Monday, critiquing what he perceives to be the disproportionate power wielded in the sector by centralized cryptocurrency exchanges. 

Gensler’s comments, made on Monday before the annual meeting of the Securities Industry and Financial Markets Association—a prominent trade group representing securities firms, banks, and asset managers—focused primarily on promoting competition among equity market makers. But the SEC chair, while cautioning about the danger of centralization in traditional finance, also made a point to take a passing swipe at the crypto industry. 

“We’ve even seen centralization in the crypto market, which was founded on the idea of decentralization,” Gensler said. “This field actually has significant concentration among intermediaries in the middle of the market.”


Gensler used the analogy of sand flowing through an hourglass to articulate how financial intermediaries—sitting at the neck of the hourglass, as they process trillions of dollars worth of transactions—can disproportionately capture profits, given their advantageous position. 

He then said that he believes a number of cryptocurrency exchanges function in this problematic manner, though he did not single out any particular exchanges by name. 

“There’s a tendency for central intermediaries to benefit from scale, network effects, and access to valuable data,” Gensler said of these self-enriching financial middlemen. 

The SEC chair then added, in an apparent allusion to blockchain technology, that though novel technologies can often assist in creating new forms of economic competition and unseating entrenched winners, centralization quickly finds a way to re-establish itself in novel sectors. 

“Though technological innovations repeatedly disrupt incumbent business models, centralization still tends to reemerge,” Gensler said. 


Gensler’s comments, particularly his critique of the rise of centralization in the supposedly decentralized crypto ecosystem, are of particular note given the actions taken in recent months by federal agencies to curtail certain decentralized components of crypto and DeFi. 

In August, The Treasury Department’s Office of Foreign Asset Control (OFAC) sanctioned Ethereum coin-mixing tool Tornado Cash and blacklisted numerous wallet addresses associated with the service; Tornado Cash allowed users to keep their crypto transactions private by obfuscating otherwise publicly available transaction data. The Treasury claims that the service was facilitating money laundering and aiding terrorist groups. 

Many privacy advocates took the move as an indication that the federal government has determined anonymity—a founding tenet of crypto, along with decentralization—to be a fundamentally unacceptable component of the crypto market.

The episode also deepened a rift between centralized crypto companies and decentralized projects and their advocates. Certain crypto firms, particularly larger, centralized ones, immediately took steps to preemptively comply with the Tornado Cash sanctions, due to the risk posed by attracting the federal government’s ire. Decentralized organizations, meanwhile, doubled down on their hostility toward the American government and their commitment to user privacy

Circle, the company behind stablecoin USDC, was one such centralized firm that actively complied—without being asked by federal authorities—with the Tornado Cash sanctions, freezing all USDC present in wallets blacklisted by OFAC. The company’s co-founder and CEO, Jeremy Allaire, later bemoaned in a blog post that he felt the federal government had forced his hand and made Circle a less decentralized company against its will. 

“[Complying with Tornado Cash sanctions] compromised our belief in the value of open software on the Internet and our belief that the presumption and preservation of privacy should be enshrined as a design principle in the issuance and circulation of dollar digital currencies,” Allaire said at the time. 

The Commodities and Futures Trading Commission (CFTC), meanwhile, is entrenched in an ongoing, novel lawsuit against a decentralized autonomous organization (DAO), that would see the DAO’s entire membership held liable for the consequences of all DAO-wide votes. The suit, if successful, could see DAOs—the organizational cornerstone of crypto’s decentralization push—derailed as an alternative to a centralized company structure for crypto projects. 

Attorneys for venture capital firm Paradigm wrote in a filing last week that the CFTC’s “theory of liability would ensare countless unwary technology users and seriously threaten the viability of DAOs in the United States.”


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