The SEC Receives No Positive Reaction With New DeFi Proposal

Key Points:

• The SEC has put forward a proposal to modify the definition of exchanges, which would encompass platforms trading in both crypto asset securities and certain DeFi platforms. 
• In April, the SEC declared its intention to reopen the exchange’s definition comment period, following its decision to broaden the scope to include crypto and DeFi.
• The agency has not received any favorable comments during the comment period. 

The SEC polled on an offer to make bigger the definition of an alternate to DeFi companies in April however has now no longer obtained a positive reaction. The remark duration will quit on June 13.

The SEC first proposed an accelerated definition of what qualifies as an alternate again in January 2022. It claimed at the time that this changed into decorating transparency and oversight over Alternative Trading Systems (ATS). The SEC described ATS as entities that exchange Treasuries and different authorities’ securities below the regulatory umbrella.

“The reopening release reiterated the applicability of existing rules to platforms that trade crypto asset securities, including so-called ‘DeFi’ systems, and provides supplemental information and economic analysis for systems that would be included in the new, proposed exchange definition,” the SEC stated in a press launch.

“The upshot of this technological reality is that holding DeFi protocols to the requirements of the regulatory regimes governing national securities exchanges and ATSs would result in their de facto expatriation from the United States. DeFi is rapidly gaining trading market share in crypto assets, especially after recent and high-profile fraud and compliance issues at leading centralized and intermediated non-U.S. crypto asset exchanges,” according to the DeFi Education Fund (DEF) reaction letter.

DEF said that the SEC’s thought fails to perceive opportunity regulatory techniques and does now no longer provide a complete, cogent, or defensible qualitative or quantitative cost-advantage evaluation. The agency has now no longer accurately considered DeFi’s function within the broader crypto marketplace.

On behalf of the National Policy Network of Women of Color in Blockchain, Tavonia Evans stated that not all decentralized exchanges (DEXs) involve the trading of cryptocurrencies for fiat currencies. Some DEXs primarily focus on the trading of cryptocurrencies, which may include stablecoins. However, the proposed rule lacks clear guidelines on how it would apply to DEXs that do not facilitate crypto-to-fiat transactions. Therefore, she urged the SEC to provide explicit guidance on this issue to ensure that such DEXs can operate within the regulatory framework.

Paradigm also criticized the SEC’s proposal, arguing that the Commission would be presenting a “Hobson’s choice” similar to what it did with Coinbase if it proceeds to regulate DEXs. Additionally, Paradigm deemed the SEC’s approach to the proposal as “haphazard.”

The SEC representatives have contended that the suggested explanation would encompass multiple cryptocurrency enterprises.

SEC chair Gary Gensler stated that several digital currency trading platforms are already considered to be exchanges based on the current definition and must adhere to the regulations governing securities. It is essential that individuals investing in the digital currency market are afforded the same established protections offered by securities laws in other markets, according to him.

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