U.S. Securities and Exchange Commission (SEC) Commissioner Jaime Lizárraga recently delivered a speech focused on "putting investors first" with regard to digital assets. He cited recent surveys for the propositions that low-income communities underserved in the traditional financial markets are increasingly investing in digital assets and that a "greater share of unbanked and underbanked individuals may own digital assets than those who are fully banked." He raised concerns of increased fraud in the digital asset market and the concentration of wealth such that "whales" who hold large positions can exert pressure and impact the market. He expressed his views that the ecosystem is predominantly centralized despite the "narrative" of decentralization; platforms that offer numerous services such as trading, custody, maintaining order books, market-making, and borrowing and lending may have conflicts of interest and may commingle customer assets with those of the platform, which poses risks to customers; the market lacks transparency and uniformity of disclosures; and digital assets are volatile and risky.
The Commissioner stated that "not every issued digital token necessarily represents a securities offering, and not every digital asset intermediary is necessarily operating as an unregistered market participant," but he noted his agreement with Chair Gary Gensler that most digital assets are likely securities. He rebutted that the SEC is engaged in regulation by enforcement and cited well-established laws and guidance comprised of the distributed autonomous organization report, the SEC Staff Framework for an Investment Contract, multiple no-action letters, and decades of legal precedent on investment contracts and notes.
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