Crypto industry advocates and lobbyists are warning that the U.S. Securities and Exchange Commission’s (SEC) latest proposal to regulate exchanges could violate the First Amendment rights of coders and double down on what they see as the SEC’s ongoing error of failing to treat this sector as something new. The SEC’s April proposal would explicitly absorb decentralized finance (DeFi) into the world of exchanges subject to SEC rules and oversight, arguing that an updated rule would help modernize the securities regulator’s approach to the changing markets.
The DeFi Education Fund, a lobbying group, argued in its comment letter that the proposal would operate as a blanket de facto banishment of DeFi from the United States. Crypto investment firm Paradigm weighed in to defend decentralized exchanges (DEXs) that don’t have the centralized management the securities rules are accustomed to dealing with, saying that the SEC’s newfound definition of ‘exchange’ is so far-reaching that it would facially encompass entities that are plainly nothing like exchanges.
Coin Center, a research group that supports the cryptocurrency movement, warned of the proposal’s danger to those who write and publish software, saying that the SEC could easily use the proposed vague standard to target certain publishers of open source software who advocate for the use of that software for certain political ends.
SEC Chair Gary Gensler has argued that investors in the crypto markets must receive the same time-tested protections that the securities laws provide in all other markets. The agency set a Tuesday deadline for public input.