SEC to Regulate DEXs: Crypto Mom Responds

• The SEC has proposed regulations to bring crypto exchanges, including DeFi exchanges, under its purview.
• SEC Chair Gary Gensler believes the new release will address comments from market participants, particularly those in the crypto markets.
• Crypto-supportive SEC commissioner Hester Peirolo voiced her opposition to the proposal due to its ambiguity.

SEC Proposes Regulations for Crypto Exchanges

The Securities and Exchange Commission (SEC) is furthering its plans to bring crypto exchanges under its regulatory purview – including DeFi exchanges. The agency has announced that it is reopening an old proposal surrounding consumer protection laws to explicitly put digital asset trading within its scope.

Proposal Applies to All Trading Platforms

Per a press release from the SEC on Friday, the reopening reiterates that existing rules governing securities exchanges also apply to digital asset trading platforms and “so-called “DeFi” systems.” “I believe this supplemental release will help address comments on the proposal from various market participants, particularly those in the crypto markets,” said SEC Chair Gary Gensler in comments accompanying the press release.

Criticism from Coinbase & Commissioner Peirolo

The original proposal in January 2022 sought to extend existing exchange laws to systems that “provide protocols to bring together buyers and sellers for trading any type of security.” Those systems would be required to register as exchanges or broker-dealers and comply with regulations for Alternative Trading Systems. While the proposal didn’t explicitly mention crypto or DeFi, the ambiguity of its language drew criticism from the popular crypto exchange Coinbase, as well as crypto-supportive SEC commissioner Hester Peirolo.

Regulation Intended To Protect Consumers

The intention behind this new regulation is consumer protection; by requiring registration with regulators such as the SEC or FINRA before allowing customers access to services like trading or investing. In addition, these types of regulations are intended for investors who are inexperienced or otherwise not familiar with cryptocurrencies and other digital assets—and may not be aware of potential risks associated with them—to avoid fraudsters looking take advantage of unsuspecting investors through unregulated investments schemes offering them false promises of high returns with low risk.

Opposition From Commissioner Peirolo

Despite her support for cryptocurrency industry growth generally, Commissioner Peirolo noted her disagreement with certain aspects of this particular rule change given how it could possibly limit innovation in cryptocurrency investment products if applied too broadly and rigidly – while still protecting consumers at all times.