Decentralized finance (DeFi) may be under attack from the U.S. Securities and Exchange Commission (SEC), which has reopened a proposal from last year that would now specifically target platforms for such crypto transactions as exchanges that need to be regulated.
To include a wider range of trading activities in the United States, the SEC suggested broadening the definition of the term “exchange” in January 2022. In its proposed regulations at the time, the agency claimed that there was a “regulatory imbalance” since some trading firms were not subject to exchange regulation.
The securities commission has studied the cryptocurrency industry’s comments from last year, which criticized the first proposal as an overreaching power grab that lacked sufficient definition to be considered genuine. A split commission decided Friday to accept what could be considered a retort to that criticism by a 3-2 vote. The revised plan now employs clearer wording and includes DeFi in the expanding definition of regulated exchanges. It also contains estimates of the costs that the sector is likely to bear as a result of the move.
Gary Gensler, the chairman of the SEC, asserts that the majority of cryptocurrency platforms now function as unregistered securities exchanges, regardless of the most recent modifications to the definition of what constitutes an exchange. Nevertheless, a fact sheet published by the SEC describing the revisions states that he and the commission want to “reiterate the application of current laws to platforms that trade crypto asset securities, including so-called “DeFi” systems.”
He added in the meeting on Friday that “calling yourself a DeFi platform is not a justification to violate the securities regulations.”
Several market players requested more information about the proposed revisions and how precisely they would apply to crypto assets and DeFi, according to SEC officials who spoke to media before the meeting and claimed the reopening and extra information came as a result.
SEC officials claim that the organization is not attempting to define DeFi in the regulation but rather will evaluate each situation depending on how the transaction is being handled, including if there is an intermediary and exactly what service the intermediary is providing. Mark Uyeda and Hester Peirce, the two commissioners who voted against the revisions to the plan, criticized the proposal’s lack of specific definitions and examples the most.
The revised text, according to Peirce, “doubles down on faults” from the earlier version and “articulates unclear and unworkable norms.” She said, “It seems strange to me that we would be fostering centralization,” pointing out how much of the centralized crypto business was destroyed last year.
Peirce, who asked the SEC staff a protracted series of inquiries about how the new exchange definition might operate, said, “We should have gone back to square one and issued a concept release.” The SEC staff frequently responded that they would need to consider her inquiries and get back to her with more information.
Uyeda, who criticized the proposal’s “expansionary and vague phrasing,” said that the SEC’s response to many of the important issues posed by individuals who may be subject to regulation appears to be “It depends.”
Gensler reaffirmed his opinion that “the great majority of crypto tokens are securities” and that crypto trading platforms currently satisfy the criteria for securities exchanges.
“These platforms match orders of multiple buyers and sellers of crypto securities using established, non-discretionary methods,” he said. “That’s the definition of exchange – and today, most crypto trading platforms meet it. That’s the case regardless of whether they call themselves centralized or decentralized.”
