SEC Warns Defi Could Be Included in Expanded Definition of ‘Stock Exchange’

Last week, the U.S. Securities and Exchange Commission (SEC) warned that DeFi could be included in the expanded definition of a stock exchange. This is the latest move to formalize President Gary Gensler’s statement:

“Cryptocurrencies are in the realm of securities and will be regulated in this way.”

decentralized finance

The cryptocurrency industry has long asked the SEC to create specific rules or guidelines to ensure that digital asset businesses comply with or stay out of the agency’s jurisdiction. . The decision to include DeFi in the proposed new transaction definition further underscores that the crypto-financial movement will not be properly regulated. Instead, the agency is tweaking the rules to ensure cryptocurrencies comply with current securities regulations.

“We know about this new technology and we don’t want to make any adjustments to accommodate it. If you don’t look like the incumbent, we either kill you or Kick you out, or force you to turn yourself into a centralized entity. Move, she objected.

The agency voted 3-2 to revive an existing proposal to expand the way it defines regulated activities such as securities trading, especially DeFi. To comply with this move and others by the SEC, crypto businesses will have to decide whether to make fundamental changes — such as increased centralization. Some of these changes could threaten the way they approach money and investments.

Jason Gottlieb, a cryptocurrency client attorney at Morrison Cohen in New York, commented:

“The SEC simply wants to ban DeFi protocols in the US. By doing so, the SEC is replacing Congress’ prerogative on one big issue with its own opinion: the focus on the future of the US economy.

The change, Gottlieb said, “will sweep decentralized software protocols into a regulatory framework that wasn’t built for them, and they’re really not technically compliant.”

Gensler stuck to the usual message as the committee votes on the proposed transaction definition, which is currently open to a 30-day comment period before the rules can be finalized in another vote.

“Investors in crypto markets must have access to the same tried and tested protections that securities laws provide in all other markets.

The SEC is now positioning itself on the regulatory battleground:

– The agency targeted trading platforms of unregistered exchanges and warned Coinbase of imminent action.

– The agency marks certain tokens, profit-making products, and staking services as securities.

The agency proposing the rule would likely require investment firms to keep crypto assets outside the industry.

– organ propose The “best practice” rules will include any firm trading cryptographic security tokens.

— In addition to voting last week to add DeFi to the definition of transactions, the agency also proposed a new method to identify securities dealers who may have engaged in DeFi-like activities in the last year.

“There is nothing in the crypto market that does not comply with securities laws. Calling yourself a DeFi platform is not an excuse for violating securities laws,” Gensler said during a hearing of the U.S. House of Representatives Financial Services Committee on Tuesday.

He will face off against the Republican majority committee for the first time this year, and he is expected to face criticism for his stance on encryption that often violates Republican priorities.

At this stage, the SEC’s stance on cryptocurrencies may simply be in a different direction than Congressional law or court cases, such as the outcome of a legal dispute with Ripple Labs over whether XRP is an unregistered security.

The latest enforcement action against cryptocurrency exchange Bittrex on Monday and a similar lawsuit against Beaxy last month are fulfilling Gensler’s claim that today’s exchanges are trying to fulfill multiple (sometimes conflicting) roles without registration. ). Gensler is often critical of self-built platforms such as exchanges, brokers, custodians and clearinghouses — each of which must be properly registered with federal regulation.

But proponents of DeFi had hoped that a decentralized approach would shield them from such regulation by putting transactions on a peer-to-peer level without companies acting as intermediaries. Calling a transaction “decentralized” won’t be enough if the SEC approves the final version of the proposed transaction definition.

Joshua Ashley Klayman, Head of Crypto at Linklaters in New York, said:

“If it’s pushed, there’s a way to innovate. The industry is full of very smart people who will find a way to continue. It may not be the same as it is now, but I think the industry will continue to grow.”

Commissioner Peirce, often dubbed “Crypto Mom” for his numerous previous statements of support, said DeFi’s latest move marks a “very important moment.” Some of the questions she tried to ask the SEC’s legal team ahead of the vote, but staff were unsure. The agency’s proposal doesn’t define DeFi or say exactly how such transactions would fit within its rules, but SEC officials said the criteria for such activities would be considered on a case-by-case basis.

Pierce said:

“Ultimately, law enforcement will comply with those requests.”


According to Coindesk

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