SEC hears from Blockchain Assoc., House Republicans on ‘exchange’ definition proposal

The United States Securities and Exchange Commission (SEC) had the comment period for their plan to modify Rule 3b-16 of the Securities Exchange Act of 1934 end on June 13, which was extended. The Blockchain Association and Republican members of the House of Representatives Committee on Financial Services submitted their remarks at the last moment.

The hundreds-of-pages-long amendments proposal was released in January 2022, not mentioning digital assets. When the comment period was reopened, another lengthy document was released, this one addressing digital asset platforms. Observers have suggested that the amendments could have a significant effect on the crypto industry, and have elicited numerous negative responses.

The 29 Republican committee members expressed disapproval of the proposal to broaden the definition of exchange so extensively that it would encompass “software developers and participants in a blockchain network’s consensus mechanism,” and would go beyond the purview of the agency with the inclusion of “Communication Protocol Systems.” Furthermore:

The letter concluded that the proposal is indicative of the SEC’s antagonism toward blockchain technology, and that it advances Chair Gary Gensler’s personal opinions without sufficient examination or explanation.

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The Blockchain Association has already presented two sets of comments. In their most recent correspondence, the advocacy groups asserted that the SEC is overstepping its bounds, citing the major questions doctrine which was recently ratified by the U.S. Supreme Court. Moreover, the association indicated that the broad phrasing of the proposal might make validators part of an exchange, even though they are in a state of competition. The Blockchain Association also expressed that the proposal raises worries regarding freedom of speech.

The Blockchain Association asserted that the proposal is antagonistic to blockchain technology, even though it is purported to be “technology neutral,” and its cost assessment is incorrect. Kristin Smith, Chief Executive Officer of the Blockchain Association, stated in a statement:

Opposition to the SEC proposal has been expressed by a number of organizations, including venture capital firm Paradigm and advocacy group Coin Center. Additionally, SEC commissioners Hester Peirce and Mark Uyeda have voiced their disapproval of the proposed changes.

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