The Blockchain Association recently filed a 14-page letter addressing the SEC’s proposed exchange definition change. The SEC is aiming to broaden the definition of exchanges to include certain DeFi and crypto firms, such as decentralized exchanges (DEXs). In April, the SEC reopened the comment period, expressing its desire to expand the definition to cover DeFi. The comment period concludes on June 13th.
The SEC claims that its proposal is “technology neutral,” but the Blockchain Association argues that the regulatory body is effectively discriminating against this specific type of technology by consistently disregarding the unique challenges faced by individuals using or providing access to decentralized protocols. The Blockchain Association believes that the SEC’s proposal would impose a greater burden on companies that rely on distributed ledger technology and might even force some companies out of business due to their inability to meet the new registration requirements.
Concerns about fair notice, which mandates that agencies provide “fair warning” of conduct required or prohibited by regulated parties, were also raised in the proposal. The Blockchain Association argues that the rule change is vague and ambiguous, and the scope of activities that might be captured within it are not yet fully fleshed out.
Instead of creating tailor-made rules that take into account the unique nature of decentralized protocols and related entities, the SEC is expanding its jurisdiction beyond the limits originally set by Congress, raising serious constitutional and APA concerns, according to Kristin Smith, CEO of the Blockchain Association.
There’s also an argument that the SEC’s proposal violates the Administrative Procedures Act (APA), which guides and governs how government agencies develop and issue regulations. Marisa Coppel, policy counsel for the Blockchain Association, explained that the SEC believes that DeFi is already covered by the law, and they cannot put forth a new interpretation of the current law that greatly expands what it says without going through the proper notice and comment procedures.
Paradigm, the DeFi Education Fund, and numerous Republicans on Capitol Hill have criticized the proposed change. The DeFi Education Fund expressed concern that applying the regulatory regimes governing national securities exchanges and ATSs to DeFi protocols would result in their de facto expatriation from the United States.
In conclusion, the SEC’s proposed exchange definition change could have far-reaching consequences for the DeFi and crypto industries. While the SEC aims to be technology-neutral, the Blockchain Association and other stakeholders argue that this expansion may unintentionally discriminate against decentralized protocols and drive innovation away from the United States.
Source: Blockworks
