In a recent development tinged with skepticism, Paradigm, a leading crypto venture capital firm, accused the United States Securities and Exchange Commission (SEC) of skirting established rulemaking processes. At the heart of the matter is a lawsuit against the popular cryptocurrency exchange, Binance.
This matter is interspersed with two conflicting waves of thought. On one hand, it underlines the SEC’s noteworthy attempt to tighten rules around operations of major cryptocurrency exchanges, aiming to improve security and trust within the crypto industry. In the case under discussion here, the SEC has accused Binance of violating various securities laws, including operating without the required registration as an exchange, broker-dealer, or clearing agency.
However, there are concerns about the way the SEC is wielding its regulatory torch. Paradigm pointed out that the SEC seems bent on using allegations in its lawsuits as a means to modify established regulations, while bypassing the standard rulemaking process.
One of the paramount areas where the SEC’s application is under scrutiny is its consistent use of the Howey Test. This test, created as a result of a 1946 U.S. Supreme Court’s citrus groves case, is commonly used by the SEC to determine whether transactions meet the investment contract requirements, thus falling under securities rules.
Paradigm, however, has criticised the SEC’s implementation of the Howey Test. It contends that even though numerous assets are actively marketed, bought, and sold based on their profit prospects, the SEC has consistently exempted them from being identified as securities.
Adding fuel to this fire lies the views of Circle – the issuer of the USDC Stablecoin. Circle recently jumped into the ongoing legal scrap between the SEC and Binance. Despite the SEC’s avid use of the Howey Test to categorise transactions, Circle argued that stablecoins, including BUSD and USDC, should not be classified as securities primarily because individuals acquiring these stablecoins do not expect to derive profits solely from the acquisition.
In conclusion, while the argument for strengthened regulations is rational, ensuring the preservation of established lawmaking procedures is also important. This dichotomy invites everyone within the crypto community to ponder upon the wider implications of such regulatory actions on the future of cryptocurrency.
Source: Cointelegraph
