With the rise of decentralized finance (DeFi) technology projects, it is both refreshing and surprising to see that the United States Securities and Exchange Commission has not made too much of a fuss about newly issued tokens funding these projects. While the SEC's concerns about cryptocurrencies have been around for years, there are still significant questions about their use by the public and private sector.
The inactivity of the SEC with regard to DeFi tokens is a far cry from the not so distant days of scrutiny and lawsuits filed against the likes of Ripple Labs, Block.One, and other projects that involved initial coin offerings (ICOs). It should be noted that many of these matters are still pending resolution; such is the case with Ripple Labs and the XRP token, but it is also important to remember that this is a centralized blockchain project, which puts it closer towards fitting the SEC's definition of registered securities. DeFi projects are explicitly decentralized, and many of them are not even intended to function as currencies.
While there are no actual legal requirements, many states have passed statutes that require investors to register as fiduciaries with these new DeFi platforms. A few states have passed legislation requiring people wanting to invest in cryptocurrencies to verify their identities, as well as requiring them to provide certain proof of address — both of which are very vague, and have no clear legal impact, at least not for now.
The outcome of all this could be interesting. One of the more interesting scenarios has DeFi tokens traded on futures exchanges later this year, which could elevate them to the status of commodities. It could be a long shot for sure, but who knows. What we will need to see is where the de facto market cap of these tokens will go when this comes to fruition, if it does at all. Market capitalization tends to attract the attention of regulators, especially when we start to see incidents such as hacking of digital wallets, token promotion, outrageous volatility, and fraudulent transactions. We should not think that the DeFi world will be impervious to these issues.