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US Regulators Allegedly Forced DeFi Bans

The Essentials in Brief

The US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are reported to have forced several DeFi (Decentralized Finance) founders to sign an agreement during President Biden’s term, prohibiting them from further involvement in the crypto industry. These incidents have not been publicly discussed so far, as the affected founders were required to sign a so-called Non-Disparagement Clause (NDC).

Forced Settlement and Threats

Joey Krug, a partner at Founders Fund, addressed these incidents during the ETH Denver conference. He reported that government agencies pressured DeFi founders into accepting a settlement with the SEC or CFTC. As part of this settlement, a clause was included that bans them from ever working in the crypto industry again.

Additionally, authorities allegedly threatened them with prison sentences, despite no evidence that any of the affected individuals had violated any laws. Particularly alarming is the fact that the SEC and CFTC are civil agencies and should have referred such cases to the US Department of Justice (DoJ).

Background: Operation ChokePoint 2.0

During the Biden administration, the so-called “Operation ChokePoint 2.0” became known. This initiative systematically excluded crypto companies from access to banking services. The US Congress is currently investigating the extent of these measures. However, it has not been publicly disclosed that founders were actively pushed out of the industry.

Call for Transparency

Krug urged the US Congress to summon the affected founders as witnesses and hold the responsible agency officials accountable. However, he expressed optimism that the SEC’s stance might change under the new administration. The Trump administration follows a more crypto-friendly policy and has already reversed some regulatory actions against companies such as Coinbase, Gemini, and Uniswap.

Our Assessment

If these allegations prove true, it would be a concerning signal for the crypto industry. The targeted removal of DeFi founders through regulatory pressure could hinder long-term innovation in the US. The ongoing congressional investigations will determine whether political consequences follow. The development of the new SEC policy remains to be seen.