The U.S. Securities and Exchange Commission (SEC) released a proposal to change the definition of “security exchange” in order to broaden its regulation.
The SEC stated that the purpose of the proposal is “to include systems that offer the use of non-firm communication protocols and trading interests to bring buyers and sellers of securities together.”
The initiative generated concern and public backlash from the community that fears the impact this will have on decentralized finance (DeFi).
Commissioner Hester Peirce and DeFi community figures publicly reject the change.
In this way, decentralized finance platforms could be included under the term ATS (alternative trading system), Gabriel Shapiro, a lawyer and DeFi enthusiast, said in a statement.
Although the document makes no express reference to DeFi, blockchain, protocols or AMM (automatic market maker).
However, he said, “I think it is very likely that the SEC staff will use its expanded definitions of ‘stock exchange’ to bolster currently weak arguments that MMAs constitute stock exchanges.“
An example of an AMM could be a decentralized exchange (Uniswap or PancakeSwap, among others), where a smart contract determines the price of assets based on supply and demand.
The community asks to raise its voice to take care of DeFi.
Gabriel Shapiro expressed, “We should not underestimate the threat that this radical and sudden paradigm shift by the SEC poses to the blockchain and decentralized finance movements.”
He also emphasized: “We have been given a minimum of 30 days to make our voices heard.”
The Commissioner Hester Peirce, who issued a statement of dissent on the proposal, adjudged that the 30-day period given by the SEC for review “is unconscionably imprudent.”
She said this, considering that its “effects will reverberate throughout the markets we regulate, in ways we cannot foresee.”
The Commission has determined that it is appropriate to provide the public with 30 days to read, understand, consider, consult, identify, model, evaluate, and discuss these rules and how they are likely to affect trading venues for all types of securities traded in our markets.
The commissioner also stated that there is still “a lot of uncertainty about how the SEC thinks about digital asset securities and there are even different views within the regulator.”
The SEC should revise this proposal to make clear that it does not, in effect, intend to prohibit the creation and deployment of mere code for peer-to-peer token trading or websites, including even simple blockchain explorers, such as Etherscan, that simply provide information about interactions that have occurred or may occur.
For his part, Gary Gensler, the chairman of the SEC, noted in a statement, “a lot has changed.” “During that time, the private fund industry grew in size to a net asset value of USD 11 trillion and evolved in terms of business practices, complexity of fund structures, investment strategies and exposures,” he said.
That is why he believes it is appropriate to change the definition of “stock exchange” to broaden its regulation.
The DeFi’s are not the only thing that could be in the SEC’s sights, though. The regulator would also be keeping an eye on interest payment services for Bitcoin (BTC) deposits and other cryptocurrencies.