SEC Delivers Unexpected News on Crypto & DeFi! Traders Beware – Significant Rule Changes Revealed
The United States Securities and Exchange Commission (SEC) has recently implemented strict regulations for individuals involved in providing liquidity. These regulations not only pertain to federal securities laws but also have an impact on the cryptocurrency and decentralized finance (DeFi) sectors.
The rule, which was initially proposed in March 2022, was finally approved by the SEC after a two-year period, with a 3-2 majority vote during a meeting held on February 6. The approved rule consists of 247 pages and will affect those dealing with crypto assets that are defined as securities or government securities, with the exception of those with assets totaling less than $50 million. The rule also has implications for the DeFi sector, as outlined within its provisions.
According to the rule, individuals who engage in trading crypto asset securities within the DeFi market must register as a “dealer” or “government securities dealer” if their activities meet the criteria of being a regular business. This includes regular buying and selling of crypto assets and providing liquidity to others, as stipulated in the qualitative standard.
Despite receiving approval, there are concerns from some commentators who argue that the rule is unfair for DeFi products, citing their decentralized nature without a central governing body and their sole function as software.
In response to the SEC’s decision, the DeFi Education Fund strongly criticized the move, deeming it “misguided and unworkable.” The organization hopes that the SEC will reconsider its rulemaking and fully assess the potential effects of the current proposal.
CEO Miller Whitehouse-Levine believes that the SEC failed to consider the practical challenges faced by DeFi entities, suggesting that the rules are not supportive of innovation. Cody Carbone, Vice President of Policy for the Chamber of Digital Commerce, expressed similar sentiments, criticizing the SEC for its ongoing lack of support for the digital asset industry and its failure to consider the industry’s perspective.
Meanwhile, SEC Chair Gary Gensler defended the regulatory changes, emphasizing the $50 million exception and the importance of safeguarding investors in both the crypto and non-crypto spaces. Gensler argued that these rules align with Congress’s intent to promote fair competition.
During the meeting, Republican Commissioner Hester Peirce, one of the two votes against the rules, raised questions about the inclusion of automated market makers (AMMs) in the regulations. She questioned whether AMMs, often regarded as software protocols, should be required to register as dealers. In response, the SEC stated that AMMs are more than just software. However, Peirce expressed concerns regarding transparency and market participants’ understanding of SEC rules.
The final rules will take effect 60 days after being published in the Federal Register, with a one-year compliance period. As the crypto industry prepares for increased regulatory scrutiny, the full impact of these SEC rules on decentralized finance remains uncertain.