#DeFi #DEX #security #Regulation #originalcontent
The US Securities and Exchange Commission (SEC) has reopened its consultation on a proposal to expand the definition of "exchange" following opposition from the crypto industry, which does not want decentralized finance (DeFi) platforms to be included in the definition.
The SEC voted 3-2 to seek comments and suggestions from the public after crypto companies criticized the plan as unclear and an attempt by the regulator to rope in DeFi platforms.
The proposed plan, which was put forward in January 2022, would extend the definition of "exchange" to include platforms that use "communication protocols" such as request-for-quote systems. If adopted, the expanded definition would cover much more than traditional exchanges that match orders from multiple buyers and sellers in the market.
While the statement was reportedly aimed at Treasury markets and other government securities markets, where brokers have been operating on the exchange without registering, crypto firms caught wind of the plan amid growing tensions with the SEC.
Some DeFi platforms may fall within the proposed definition, but others may be considered exchanges, according to SEC officials. A dozen crypto companies would fall within the expanded definition, but it is not clear which ones. As Gary Gensler, the SEC's chair, noted, "I think the market has changed since 2017, and it's time for Congress to consider whether a broader definition of exchange is necessary."
Crypto companies are pushing back against the SEC's proposal, arguing that it is an overly broad and burdensome approach to regulating the space. They fear that it could stifle innovation and drive businesses out of the US. Meanwhile, the SEC is keen to ensure that all entities that fall under the definition of "exchange" are regulated and held to the same standards as traditional exchanges.
The debate over whether DeFi platforms should be classified as exchanges is likely to continue, as both sides argue their cases and seek to influence policymakers. As the crypto industry continues to evolve and mature, regulators will need to strike a balance between protecting investors and fostering innovation in the space.