The U.S. Securities and Exchange Commission (SEC) recently voted to approve a new regulation requiring market participants with significant liquidity-providing roles to comply with federal securities laws, bringing cryptocurrencies under regulatory purview. The SEC passed the rule-making with a 3-2 vote in its latest meeting, with the proposed 194-page form mentioning cryptocurrencies in footnotes. The 247-page rule passed on Tuesday will apply to individuals engaging in transactions of crypto assets that meet the definition of securities or government securities, excluding assets valued under $50 million. According to the passed regulation, these rules will impact decentralized finance (DeFi).
Under the regulation, participants engaging in crypto asset securities trading activities that meet the definition of "as part of the regular business" as specified in the final rule and without any exceptions or exclusions will be required to register as broker-dealers or government securities brokers. Since the rule was first proposed in March 2022, the cryptocurrency industry has rebutted the rule in comment letters to the SEC. Some commentators argue that the rule is unreasonable for DeFi products because they lack central controlling entities and are purely software-based.
The DeFi Education Fund delved into the role of Automated Market Makers (AMMs) in its comment letter, referring to them as "executing protocols." The fund stated that AMMs implement liquidity pools for cryptocurrencies and other digital assets, locking them into smart futures and facilitating trades. The DeFi Education Fund called the rule-making passed on Tuesday "misguided and impractical."
CEO Miller Whitehouse-Levine stated, "While the SEC acknowledges receipt of comments discussing DeFi, including our concerns, the SEC not only failed to address the substance of our concerns but also failed to articulate any apparent compliance paths for DeFi market participants." In a statement sent via email, he added, "Imposing unworkable obligations on entities in the DeFi ecosystem is misguided, impractical, and inhibitive to innovation."
Cody Carbone, Vice President of Policy at the Chamber of Digital Commerce, described Tuesday's vote as "another example of the SEC's continued hostility toward the digital asset industry."
Carbone stated in a release, "We are calling on more market participants to register as broker-dealers, abandoning decades of precedent of applying impossible rules to digital asset market participants." He added, "While the rule is impactful, the SEC does not seem to want the digital asset industry to have any say in it, as the proposed 200-page rule only mentions digital assets in footnotes."
SEC Chair Gary Gensler pointed out the $50 million exception threshold and stated that there is demand in both the cryptocurrency and non-cryptocurrency arenas.
Earlier, Gensler remarked in his opening statement that there is a need to develop rules across the board to protect investors, noting that markets have evolved faster with the advent of digitization and algorithmic trading. He stated that these companies act as "de facto market makers" and are not registered as broker-dealers with the SEC, which would require them to report data and maintain books and records.
"These measures are just common sense to me," Gensler said.
"Congress didn't intend to have registration and regulatory requirements apply to some dealers and not others. In the absence of exemptions or exceptions, if anyone is transacting in a manner that fits the de facto market making, they must register as a dealer — that's consistent with Congress's intent but also has a certain degree of competitiveness towards it, making it fair and equal," Gensler added.
The final rule will take effect 60 days after publication in the Federal Register. The compliance date is one year after the final rule's effective date.
For more analysis, please follow Aibit's media account for real-time updates! This article is for reference only, does not represent any position, and is not intended as investment advice. Investment is risky, caution should be exercised.
Facebook: https://www.facebook.com/aibitcom
X: https://twitter.com/aibitcom
Telegram (CN): https://t.me/aibitcom_cn
Telegram (EN): https://t.me/aibitcom
Telegram (Announcements): https://t.me/aibitcom_announcements
Discord: https://discord.com/invite/aibitcom
Medium: https://medium.com/@aibitcom
Youtube: https://www.youtube.com/@aibitcom