key takeaways:
- Coinbase submitted a letter to the SEC yet again, stating that regulating DEXs in the same way as a central exchange is impossible.
- Exchanges are defined in the SEC’s most recent regulatory proposal as any technology that merely connects prospective buyers and sellers.
In the world of cryptocurrency, decentralized exchanges (DEXs) have gained significant popularity for their ability to provide users with greater control and privacy over their assets. However, a recent argument presented by Coinbase Chief Legal Officer (CLO), Paul Grewal, sheds light on the challenges faced by DEXs when it comes to registering and operating like traditional exchanges.
This juncture highlights the regulatory complexities surrounding the evolving landscape of decentralized finance (DeFi) and raises important considerations for the future of cryptocurrency exchanges.
Coinbase Chief Legal Officer (CLO), Paul Grewal, recently took to Twitter on June 14 to express his criticism of a proposed rule change by the U.S. Securities and Exchange Commission (SEC). Grewal argued that the proposal, which aimed to apply securities laws to decentralized exchanges (DEXs), was fundamentally flawed in both process and substance.
Grewal specifically referred to the SEC’s decision to extend the comment period for the proposed rule change in the Securities Exchange Act of 1934. The rule change would potentially subject DEXs to the same regulations as traditional securities exchanges. However, Grewal contended that this approach was ill-suited and impractical.
In his Twitter thread, Grewal stated that the SEC’s proposal attempted to fit a “square peg in a round hole.” He asserted that requiring DEXs to register in the same manner as national securities exchanges was impossible and violated the Administrative Procedure Act. Grewal emphasized the need for the SEC to conduct thorough economic analysis, even if the data supporting it was currently lacking, instead of making unsupported assumptions about its jurisdiction over cryptocurrencies.
Coinbase’s statements came when the SEC was at the forefront of attention in the United States over cryptocurrency legislation. The SEC has filed separate actions against Binancex and Coinbase for suspected securities law violations, prompting lawmakers to call for SEC Chair Gary Gensler’s ouster.
Coinbase submitted a reply in support of its July 2022 petition for a writ of mandamus in an attempt to compel the SEC to provide regulatory clarity for entities wanting to register prior to the SEC litigation, but following a Wells letter hinting at a future enforcement action.
