Coinbase urges SEC to retract DeFi rule, calls it 'fundamentally flawed'

Key Takeaways

Coinbase’s authorized officer criticizes the SEC’s strategy to regulating decentralized exchanges.
The SEC’s rule may pressure DEXs to stick to conventional trade laws.

Coinbase has submitted a strongly worded remark letter to the SEC, urging the company to withdraw its proposal to develop the definition of “trade” to incorporate decentralized exchanges (DEXs).

The crypto trade argues that the SEC’s proposal is basically flawed and lacks satisfactory cost-benefit evaluation. Coinbase Chief Authorized Officer Paul Grewal emphasised that the rule may stifle innovation and impose unworkable compliance burdens on DEXs.

Within the letter addressed to SEC Secretary Vanessa A. Countryman, Grewal contended that the proposed rule fails to account for the distinctive operational traits of DEXs and the possibly extreme financial impacts on the broader crypto market. Coinbase’s most important concern is that the expanded definition goals primarily at regulating DEXs, which facilitate buying and selling in digital belongings with no central middleman.

The trade warned that the rule would impose “anachronistic and impossible-to-satisfy necessities” on DEXs, probably driving them out of the US market totally. This might result in a big discount in innovation and competitiveness inside the American monetary sector, as builders and companies could also be compelled to maneuver operations offshore.

Authorized precedent defines ‘operation’

Coinbase highlighted the current Supreme Courtroom ruling in Loper Vivid Enterprises v. Raimondo, which overturned the Chevron deference. The trade argued this ruling diminishes the chance of courts upholding the SEC’s try to increase the Change Act’s attain to DEXs, particularly when the company admits to missing enough info on how DEXs function.

The letter criticized the SEC for basing its value estimates on conventional, centralized entities, which Coinbase argued are basically completely different from decentralized platforms. It famous that DEXs, working with no centralized group of individuals, can not adjust to present registration and disclosure necessities, making the SEC’s assumptions about compliance prices unrealistic and deceptive.

Grewal identified that the SEC lacks obligatory info to conduct a correct cost-benefit evaluation, together with a transparent definition of “crypto asset safety” and the variety of exchanges working out there. He said:

“It’s accordingly unimaginable to see how the Fee may probably have discharged its statutory and procedural obligations to manage in gentle of the very best out there info when the Fee admits that on many key points it has little or no info in any respect.”

SEC rule may result in exit from US crypto companies

The trade referred to as for the SEC to withdraw the proposed rule and conduct a extra thorough evaluation of financial impacts earlier than contemplating additional regulatory motion. Coinbase warned that the rule, as presently proposed, would possible result in the exit of DEXs from the US market, depriving American customers of advantages comparable to enhanced transparency and decrease transaction prices.

Sapphire

This remark letter is Coinbase’s third on the proposed rule change. The SEC proposal, initially launched in 2022, has confronted criticism from varied trade gamers and lawmakers. The Blockchain Affiliation and Republican members of the Home Monetary Companies Committee have additionally filed feedback opposing the proposal.

In March, Coinbase sought to dismiss an SEC lawsuit alleging the crypto trade operated with out correct registration, difficult the applying of the Howey take a look at to digital belongings.

Final month, Coinbase legally contested the SEC’s rejection of its rulemaking petition, criticizing the SEC for arbitrary and dangerous enforcement practices with out clear pointers.