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by Aishwarya shashikumar
The SEC’s new proposal leaves us wondering if Decentralized Finance (DeFi) businesses going to have a hard time in the near future. In light of recent events, it has come to our notice that the Securities and Exchange Commission (SEC) has proposed revising what it means to be a securities dealer, a move that industry insiders believe will damage the decentralized finance business.
The proposal would broaden the definition of “dealer” to include individuals and firms who execute deals and supply market liquidity using automated and algorithmic trading technology.
While the proposal is purportedly intended at electronic dealers of US Treasurys — an issue the SEC has been grappling with since at least 2014 – a clause buried in the 200-page text states that the new rule would also extend to digital assets that have been considered securities.
Using Twitter, cryptocurrency attorneys raised the alarm, calling the proposal an “all-out shadow attack on decentralized finance (DeFi).”
The proposal could very well generate all automated market makers (AMMs) and liquidity providers with total assets under management of more than $50 million under the SEC’s regulatory umbrella, making them subject to the SEC’s registration requirements – something that many, if not all, decentralized exchanges would be unable to do.
Any decentralized exchange that meets the proposal’s new standards but does not register with the SEC, Shapiro argues, will be labeled as unregistered dealer, which is a felony under securities law.
Going stealth mode on DeFi
Some lawyers have seen the inclusion of crypto as a single remark in the huge plan as an intentional attempt to cause confusion and doubt in the crypto markets.
Efforts to bring regulatory certainty to the market have faltered, leaving the SEC to rely on enforcement to govern the industry.
Many industry participants, including large exchanges like Coinbase, have attempted to remain compliant but have been faced with ambiguous requests from SEC Chairman Gary Gensler and his staff to “come in and register” with the SEC.
However, Monday’s proposal is being slammed as proof that the SEC’s offer was never serious.