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  • Writer's pictureSarah Dixon

Gensler’s SEC Has Sights on Crypto’s Decentralized Exchanges – Opens Public Consultation

The US Securities and Exchange Commission (SEC) has decided to reopen the public comment period for its proposal to include DeFi platforms in its definition of an “exchange.” DeFi platforms are decentralized cryptocurrency platforms that have been gaining popularity over recent years.

Notably, the proposal has faced criticism from some crypto firms who believe that the proposal lacks clarity and could bring DeFi platforms under greater regulatory scrutiny. However, the SEC’s goal is to clarify that its current rules regarding exchanges also apply to DeFi platforms. Interestingly, this clarification could help ensure that DeFi platforms operate within regulatory boundaries and protect investors from fraudulent activities.

The decision to seek additional public comments clearly reflects the SEC’s commitment to a transparent and inclusive rulemaking process. This could have potential benefits for the DeFi industry.

The SEC is allowing DeFi platforms and crypto businesses to submit comments and perhaps affect the final regulation by reopening the public comment period. This might result in a more detailed and fair approach to regulating DeFi platforms, which have been crucial in allowing decentralized financing and innovation in the cryptocurrency sector.

SEC Contemplates DeFi Platform Regulation to Safeguard Investor Interests

It’s important to recognize that DeFi platforms enable users to lend, borrow, and store digital assets without the involvement of banks or exchanges. The SEC intends to categorize DeFi platforms as “exchanges” in order to regulate them accordingly.

This proposal, introduced in January 2022, aims to regulate platforms employing “communication protocols,” such as request-for-quote systems. Simultaneously, the SEC seeks to extend its regulatory scope beyond just conventional exchanges where transactions take place.

SEC Anticipates Crypto Companies Could Be Subject to a Revised Definition

SEC officials have indicated that some DeFi platforms might already qualify as exchanges under the existing definition, while others could be included under the proposed definition.

Although the officials didn’t provide specific details, they estimated that nearly a dozen crypto firms would be encompassed by the expanded definition. SEC Chair Gary Gensler believes that the majority of crypto trading platforms, whether decentralized or not, align with the exchange definition.

It is important to recognize that the SEC’s decision to reopen the comment period for the proposed extension of the “exchange” definition to encompass DeFi platforms was not a standard move, and it exposed a rift among the commissioners.

This disagreement underscores the ideological divide within the SEC and could potentially impact the proposal’s outcome. Nevertheless, the SEC has demonstrated a willingness to consider public feedback.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


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