Fresh off a congressional hearing that blasted the SEC chairman for his approach to crypto, Gary Gensler is still arguing for a rule to redefine the term “exchange” so the SEC can regulate crypto and DeFi.
Posted September 30, 2024 at 7:44 AM EST.
On Thursday, SEC Chairman Gary Gensler gave a speech where he reinforced the importance of a proposed rulemaking to change the definition of an exchange, although what he did not say was that this change would give the SEC jurisdiction to both on centralized crypto exchanges as well as DeFi.
During his speech at the 10th Annual U.S. Treasury Market Conference, Gensler pointed to the modernization and “electronics” of exchanges as the reason for an amendment to the definition of what is known as “Rule 3b -16” is required.
“The Commission’s proposal, if adopted, would require the registration of certain trading platforms in the Treasury markets,” he said. “This would place Treasury trading platforms with significant volume under Compliance and Integrity Systems Regulation, a rule that protects the resilience of technology infrastructure. It would also require these platforms to comply with the Fair Access Rule, which provides for fair access to platforms and prohibits platforms from unfairly denying or limiting access. This update would fill a regulatory gap between the platforms.
What Gensler didn’t mention is how the proposed rule changes the definition to capture centralized crypto asset exchanges such as Coinbase as well as decentralized financial exchanges (DeFi).
Learn more: Gensler grilled during congressional hearing on SEC approach to crypto regulation
In the original 2022 regulations, the definition change that the crypto industry responded to was described as “communication protocols.” The new proposed rule stated: “The Commission proposes to amend rule 3b-16(a)(2) to add “communication protocols” as an established method that an organization, association, or group of individuals may provide to bring together buyers and sellers of securities. » The concept of communication protocols is what has sparked concern in the crypto industry about whether the new exchange definition could mean that all centralized exchanges and perhaps all DeFi protocols should register with the SEC.
Then, in 2023, the SEC made clear the proposed definition of an exchange and reiterated “the applicability of existing rules to platforms that trade securities of cryptographic assets, including so-called “DeFi” systems.
Paul Grewal, Coinbase’s Chief Legal Officer (CLO), has brought this particular regulation to court to argue that the SEC’s approach to regulating the crypto industry is ineffective.
In August, Grewal said on X: “At the very least, it should be taken down and rewritten.” The SEC failed to collect basic information or conduct an economic analysis on how the proposal would affect DEXs. Yet he still moved forward with his irrational assumptions.”
Learn more: Why the investigation into Gary Gensler’s hiring practices likely won’t result in any action
SEC Commissioner Mark Uyeda said of this rule in 2023: “The potential unintended consequences of the expansionary and ambiguous language of the proposed amendments to Rule 3b-16 are concerning. » Uyeda also argued that there was also not enough consideration of how this rule could impact crypto markets.
Gensler has not yet initiated additional studies or requests for comment to explore these unintended consequences, while these latest remarks signal his intention to move forward with the rule change despite any potential negative effects on DeFi.
