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ConsenSys Objects to SEC's Regulatory Amendments

The firm has commented on a proposal to expand the definition of "exchange."

ConsenSys Objects to SEC's Regulatory Amendments
Shutterstock cover by Mark Van Scyoc

Key Takeaways

  • ConsenSys has objected to regulatory amendments proposed by the SEC that would expand the definition of "exchange."
  • The Ethereum development firm believes that the language of the rule change could affect decentralized networks.
  • ConsenSys and a number of other firms and groups, including Delphi Digital, sent letters to the SEC today.

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ConsenSys, a major Ethereum development firm, has made comments expressing opposition to regulatory changes proposed by the U.S. Securities and Exchange Commission (SEC).

ConsenSys Expresses Concerns

ConsenSys’ concerns apply to a rule change put forward by the SEC on Jan. 26 that would expand the definition of “exchange.”

ConsenSys said in its letter that the change “may inadvertently designate decentralized systems as exchanges” if they handle “cryptocurrencies that are misconstrued as securities.”

The firm made it clear that it takes issue with the language of the rule, not the rule change itself. It does not believe that the SEC intends to define exchanges so broadly. It noted that the rule change does not explicitly mention crypto, DeFi, or blockchain.

ConsenSys urged the SEC to explicitly declare that blockchain-based networks do not fall under the scope of its proposal.

It added that, “in the unlikely event” that the SEC declares that blockchain-based networks are considered exchanges, doing so could violate existing regulations such as the Exchange Act of 1934.

Under that act, exchanges are defined as entities that match orders. By contrast, ConsenSys says, decentralized finance networks merely “help potential buyers search for potential sellers.”

Other Firms Raise Objections

ConsenSys is not the only blockchain firm to send a letter to the SEC this week. Gabriel Shapiro, General Counsel of Delphi Digital, said that his firm had submitted its comments to the SEC today.

He put forward similar concerns to those expressed by ConsenSys, arguing that the SEC’s regulations “seek to re-define all ‘communications protocols’ as potential securities exchanges.”

The text of Delphi Digital’s letter stated concerns that the rule change could apply to Automated Market Makers (AMMs), a trading mechanism that provides liquidity to the DeFi ecosystem.

Shapiro suggested that other groups including the DeFi Education Fund, Coin Center, and the Blockchain Association will also send letters today. Since February, the SEC has received 125 letters on the matter. Five of those letters were received today, on Apr. 18.

Ultimately, it is still unclear whether the proposed amendment poses any real threat to decentralized finance and blockchain.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies. 

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