The regulators have DeFi in their scope as they look to rewrite the definition of an exchange.
The US Securities and Exchange Commission (SEC) plans to modify a proposed rule to state explicitly that digital-asset exchanges and decentralized finance, or DeFi, platforms must register with the regulator. The SEC has reopened the comment period for the pending rulemaking and has released supplemental information on proposed amendments to the definition of “exchange” under Exchange Act Rule 3b-16.
The public comment period will remain open for 30 days after publication of the reopening release in the Federal Register.
The SEC originally introduced the proposal in 2022 with a view to addressing a “regulatory disparity.” Many platforms that provide securities trading services have not registered as exchanges or brokers. The SEC, under chair Gary Gensler, wants to close that gap.
Last year, the crypto industry provided feedback to the SEC. The industry panned the proposal. Many accused it of lacking clarity and of crossing reasonable bounds in an effort to expand the regulator’s power.
The hostility of Gensler’s SEC toward cryptocurrencies often makes headlines. Announcements of new regulatory and enforcement actions and crackdowns are a regular occurrence. In recent weeks, the agency has battled San Francisco-based payment system Ripple in a high-profile lawsuit.
A Bad Day For DeFi
Gensler emphasized that many crypto trading platforms already fall under the current definition of an exchange. Therefore, they have a duty to comply with securities laws. He also argued that investors in the crypto markets must receive the same protections as those in other markets.
During an open commission meeting on Friday, SEC Commissioner Hester Peirce dissented from her colleagues. Peirce accused the Commission of taking a “cavalier approach” and a lack of interest in “promoting innovation and competition,” focusing instead on “protecting incumbents.” Peirce has become well-known in the industry for her pro-crypto stances at the SEC.
Observers widely view this move as a means of bringing decentralized finance, or “DeFi,” more firmly into the SEC’s purview. Gensler and his allies on the Commission believe the behavior matters, not the technology behind it.
The SEC has no plans to offer a precise definition of DeFi in the regulation. Rather, it will evaluate each scenario on a case-by-case basis.
You can view the proposed amendments here.
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