Coinbase CLO: SEC Exchange Definition Doesn’t Work

The Coinbase CLO, chief legal officer Paul Grewal, says that the SEC exchange definition simply doesn’t work and said that the SEC contains no such discussions of how the new rule will impact DEFI so let’s read more today in our latest Coinbase news today.

Coinbase CLO blasted the US SEC in a Twitter thread over the proposal to change the definition of an exchange saying that the regulator is going beyond its authority. The proposal will expand the definition of the exchange to include systems that offer a non-firm trading interest and communication protocol to brign together the buyers and the sellers of securities. The non-firm trading interest means that a buyer or a seller indicated the asset as well as a quantity of price leaving the rest of the details of the trade to be determined later.

Today, @Delphi_Digital submitted to the SEC our strong objections to the SEC's recent proposed amendments to Reg ATS, which, in part, seek to re-define all "communications protocols" as potential securities exchanges.

— _gabrielShapir0 (@lex_node) April 18, 2022

Grewal argued that the new definition was broad enough to apply to the DEFI platforms but didn’t really consider how the new rule will impact the decentralized exchanges or other DEFI protocols. DEFI refers to the financial tools built on the blockchain for a purpose of lending, borrowing, or banking without needing to go through third parties:

“Despite spanning over 600 pages, the Proposed Rule, including the economic analysis, contains no such discussion with regard to digital asset securities or DEXes.”

The letter argues that the rule can include participants in a DAO or a decentralized autonomous organization and if this is the case, each person might need to submit an SEC filing and register as an exchange. A DAO is a type of falt business structure that spreads control among the participants and uses a smart contract to allocate its funds:

“Among many other challenges to applying the Commission’s registration and compliance requirements to DAO token holders. Such groups of persons may not have access to information, or the level of control over the DEX [decentralized exchange], necessary to enable the DEX to satisfy such requirements.”

As of the time of writing, the letter hadn’t been published on the SEC website which included 124 other letters as well as 170 form letters generated using a page set up by the DEFI Education fund. The letters included comments from crypto research firm Delphi Digital that wrote that the SEC can change the definition but it will strangle the industry while it is nascent. Earlier this week. Coin Center submitted its own comment arguing that the SEC proposed rule will be unconstitutional.