• Paradigm, a crypto venture capital firm, sent a letter to the SEC Secretary regarding the regulator’s proposed redefinition of the term “exchange” in the 1934 Securities Exchange Act.
• The SEC wants to revise the 89-year-old legislation to encompass decentralized exchanges (DEXes) and decentralized finance (DeFi) into the definition of “exchange”.
• Paradigm argues that fundamental differences between DEXs and exchanges make treating them as “exchanges” under the Act both “invalid and incoherent.”
Paradigm Slams SEC’s ‘Incoherent’ Attempt To Police Decentralized Exchanges
Crypto venture capital firm Paradigm has slammed the United States Securities and Exchange Commission’s attempt to redefine the term “exchange” — which if accepted, would bring decentralized exchanges under its purview. On June 8, the firm sent a lengthy 14-page letter to Vanessa Countryman, SEC secretary, regarding the regulator’s proposed redefinition of the term “exchange” in the 1934 Securities Exchange Act.
SEC Wants To Revise 89-Year Old Legislation
The SEC plans to revise the 89-year-old legislation to encompass decentralized exchanges (DEXes) and decentralized finance (DeFi) into its definition of “exchange.” Because DEX contains word “exchange,” therefore, they want to treat it like a stock exchange or securities exchange.
Fundamental Differences Between DEXs And Exchanges
Paradigm argues that fundamental differences between DEXs and exchanges make treating them as “exchanges” under this act both invalid and incoherent. In March 2022, SEC proposed changes to this act that encompasses systems which offer digital asset exchange or swaps through non-firm trading interests or communication protocols for bringing buyers & sellers together for buying/selling securities.
No Intermediaries Or Organizations Maintaining The Exchange
Paradigm also said that these DEXs don’t serve as intermediaries nor have any organizations maintaining it. Instead they use market making algorithms for balancing pools of crypto assets accessible freely by potential buyers & sellers & also run on self executing code & smart contracts on blockchain networks.
Potential Impact Of New Regulations
If these regulations come into effect then it will lead new compliance burden on DEX operators & make it impossible for many existing ones too exist without major changes in their architecture & setup. It will be difficult for investors too because they won’t be able access certain services such as margin trading facilities or other features available at centralized exchanges due lack of support from regulators easily with DeFi projects running on Ethereum network which are not subject of U.S laws currently even though American traders can participate in them indirectly from outside U.S jurisdiction