Concern has swept across crypto that this broad and novel regulatory approach would bring crypto, and DeFi in particular, into the SEC’s regulatory perimeter, ConsenSys' BillHughesDC writes.
The U.S. Securities and Exchange Commission issued a proposal to, among other things, require “communication protocol systems” to register with the agency and thereafter satisfy its many recordkeeping, transaction-monitoring and reporting obligations. These CPSs would be defined as systems or platforms that “make available” the means for buyers and sellers of securities to “interact.”
There are, of course, two threshold issues. First, which tokens, if any, are actually securities? On that long-standing issue, this proposal is silent. Second, did the SEC even intend to rope crypto into this proposed regulatory regime? Nothing in the 654-page rule mentions crypto, DeFi or blockchain protocols generally, and so there is room for doubt.
Foremost among these concerns is whether this rule exceeds the SEC’s authority. The SEC regulates exchanges, which traditionally has meant platforms where buyers and sellers actually buy and sell, but not ancillary services or platforms. This rule expands that perimeter to platforms where buyers and sellers might merely talk about buying and selling. That’s a huge change, and arguably one that the SEC doesn’t have congressional permission to make.
Moreover, rules must be issued according to a specific process, and the process in this instance is deficient in a number of respects. Such analysis would show the costs to the growing U.S. crypto ecosystem are plain. Homegrown DeFi projects would be incentivized to leave the U.S. . U.S. citizens would lose access to platforms that are proving to be more efficient, fair and accessible than traditional financial services, and the agency would create, perhaps inadvertently, a regulatory moat that shores up the primacy of big financial incumbents.