SEC Warns DeFi Traders: Brace for Regulatory Changes or Face Consequences

The United States Securities and Exchange Commission (SEC) recently introduced new regulations that will impact liquidity providers in the decentralized finance (DeFi) space. These rules go beyond federal securities laws and also affect the cryptocurrency sector.

The SEC approved the 247-page rule with a 3-2 majority vote during a meeting on February 6. The rule applies to individuals trading crypto asset securities within the DeFi market who meet certain criteria, such as regularly buying and selling crypto assets and providing liquidity to others. Those who meet these criteria must register as a “dealer” or “government securities dealer.”

However, there has been backlash from DeFi advocates who argue that these rules are unfair to DeFi products due to their decentralized nature. The DeFi Education Fund criticized the move, calling it “misguided and unworkable.” CEO Miller Whitehouse-Levine believes that the SEC did not fully consider the practical difficulties faced by DeFi entities and that the rules hinder innovation.

Cody Carbone, Vice President of Policy for the Chamber of Digital Commerce, shares similar sentiments and criticizes the SEC for its unfriendliness towards the digital asset industry. He believes that the SEC did not take the industry’s viewpoint into account.

SEC Chair Gary Gensler defended the regulatory changes, emphasizing the $50 million exception and the importance of protecting investors in both the crypto and non-crypto spaces. Republican Commissioner Hester Peirce, one of the two votes against the rules, raised concerns about the inclusion of automated market makers (AMMs) and transparency in the rules.

The final rules will take effect 60 days after being published in the Federal Register, with a one-year compliance period. The impact of these SEC rules on decentralized finance remains uncertain as the crypto industry prepares for increased regulatory attention.