Paradigm slams SEC’s ‘incoherent’ attempt to police decentralized exchanges

Paradigm, a venture capital firm specializing in cryptocurrency, has strongly criticized the United States Securities and Exchange Commission’s effort to redefine the term “exchange”, which would bring decentralized exchanges under its control if accepted.

On June 8, a 14-page missive was dispatched by the firm to SEC secretary Vanessa Countryman regarding the regulator’s proposed alteration of the phrase “exchange” as defined in the 1934 Securities Exchange Act.

The SEC is looking to update the 89-year-old legislation to include decentralized exchanges (DEXes) and decentralized finance (DeFi) in the definition of “exchange.” As “exchange” is part of the name DEX, the SEC wants to treat it in the same way as a securities or stock exchange.

Paradigm, however, argues that the fundamental distinctions between DEXs and exchanges make it both “invalid and incoherent” to consider them as “exchanges” under the Act.

Rodrigo Seira, the legal counsel of Paradigm, stated that with this “erratic rulemaking,” the SEC is attempting to inappropriately bring crypto trading platforms, including DEXs, under its control and regulate them as securities exchanges.

In March 2022, the SEC put forward amendments to the Act which would include systems that enable the use of non-firm trading interest and communication protocols to connect buyers and sellers of securities. In other words, any platforms that make it possible to trade or swap digital assets.

Paradigm claims that DEXs do not act as middlemen nor do they have any kind of “organization, association, or group of persons” responsible for managing the exchange.

Instead of relying on central authorities, market-making algorithms are employed to maintain a supply of crypto assets which can be accessed by both buyers and sellers. Moreover, DEXs operate through self-executing code and smart contracts, as opposed to being managed by associations or groups of people.

The SEC has taken action against Binance and Coinbase, resulting in a 444% increase in DeFi trading volumes.

This week, the SEC has not held back in taking action, filing dual lawsuits against two of the biggest crypto exchanges in the world, Binance and Coinbase.

In addition, the SEC has taken action against crypto for a number of years, determining that at least 67 digital assets are securities. Despite this, Congress has not yet enacted any laws that officially classify crypto markets as securities.

In the meantime, Cointelegraph reported that federal regulatory enforcement action against crypto businesses increased by 183% over a period of six months following the collapse of FTX.

Does SEC Chair Gary Gensler have the ultimate authority when it comes to crypto regulation?

Categorized in: