Key Takeaways
- Consensys urges the SEC to withdraw amendments redefining “exchange” under U.S. securities law.
- The firm argues the proposed changes exceed regulatory authority and could stifle blockchain innovation.
- The SEC’s approach could force decentralized platforms to shut down or exit the U.S. market.
Today, Consensys submitted a formal request to the U.S. Securities and Exchange Commission (SEC), urging its crypto task force, led by Commissioner Hester Peirce, to remove proposed amendments redefining “exchange” under U.S. securities laws from its regulatory agenda. The firm contends that these changes represent an overreach of authority and lack sufficient legal grounding.
The ongoing debate traces back to amendments first introduced in early 2022, seeking to extend the agency’s jurisdiction over decentralized finance (DeFi) platforms.
Consensys argues that such changes would not only exceed the agency’s statutory mandate but also contradict the Administrative Procedure Act and the U.S. Constitution. The firm included two prior letters, submitted in April 2022 and June 2023, to further emphasize the legal and practical concerns surrounding the proposal.
Impact on Blockchain Innovation
Consensys warns that the proposed definition of “exchange” would significantly expand regulatory oversight, affecting even passive technological providers.
Under the amendments, blockchain systems mediating only among sellers and buyers would fall within the jurisdiction of the agency. The broad reach, the company argues, doesn’t touch on the fundamental differences in stock exchanges and decentralized networks.
Beyond legal problems, Consensys also refers to the stifling effect such rules would have on blockchain innovation in the U.S. By imposing strict compliance provisions beyond the reach of many decentralized exchanges; the SEC risks driving innovation overseas. The amendments would unintentionally drive blockchain firms out of the country, constrict market access and hinder technology innovation.
SEC’s Cost-Benefit Analysis Under Fire
One of the biggest points of contention is that the agency failed to conduct an in-depth cost-benefit analysis. Consensys argues that the agency underestimated the number of parties impacted by the rule change and failed to discuss the larger impacts on the economy.
Under the proposed regime, decentralized finance platforms, validators, and software developers would face unintended liabilities, the company said.
Furthermore, the regulator has not been explicit about how digital assets are to be categorized under the definition of a security, and market players are left in regulatory uncertainty. The absence of explicit definitions, Consensys contends, is reflective of deep-seated shortcomings in the draft amendments.
Related Reading | SEC Closes OpenSea Probe, Marking a Win for the NFT Industry