The Securities and Exchange Commission (SEC) is exploring decentralized finance in a predictable move as it prepares to sue one of the largest decentralized exchanges.
Decentralized exchange Uniswap said on Wednesday: received The Wells Notice, or formal notice from the SEC that the agency plans to prosecute the defendant, could come in the next month or so. Uniswap founder and CEO Hayden Adams said he wasn’t surprised but was “annoyed, disappointed and ready to fight.”
The SEC has been tracking other exchanges, but they are more centralized, including: coinbase, Kraken and Binance. The agency’s attempt to sue Uniswap is unique, Jennifer Schulp said. Director of Financial Regulation Studies at the Cato Institute, a libertarian think tank.
“This is new territory for them moving forward, although it is not surprising to me or anyone else that they continue to open up new frontiers on a new front in the war against cryptocurrencies,” Schulp said in an interview. block.
Many DeFi protocols do not work with US customers and work to block US customers from accessing their protocols. Schulp said Uniswap is unusual in that it continues to serve U.S. customers.
The cryptocurrency industry has criticized the SEC for taking a “regulation by enforcement” approach and said it is impossible to register with the SEC under current rules.
In Washington, SEC Chairman Gary Gensler argued that most cryptocurrencies are securities and should be regulated similarly to other investments. Gurbir Grewal, the SEC’s chief enforcement officer. whip Last week, the cryptocurrency industry criticized the industry’s “significant non-compliance” and “creative attempts” to evade jurisdiction.
‘It’s just the beginning’
Teresa Goody Guillén, a partner at the BakerHostetler law firm and a former litigation attorney at the SEC, also said she was not surprised that the agency issued the Wells notice to DeFi exchanges.
“The SEC’s approach appears to be to go after exchanges and large actors in the cryptocurrency market so that if they go out of business, they will have a greater impact on the market, making it more difficult for the cryptocurrency industry to operate.” Goody Guillén said in an interview:
She added that putting an exchange out of business has a bigger impact on the industry than a specific cryptocurrency.
“I think this is just the beginning of (the SEC) moving into the DeFi space.” Goody Guillen added: The current securities regulatory regime does not apply to cryptocurrencies.
“It’s unfortunate that the SEC isn’t more engaged with the industry and doesn’t realize the loopholes in the securities system,” she said.
Wells’ notice comes as the SEC is considering a proposal to expand the definition of an exchange to capture DeFi exchanges. that much Create rulesThe bill, proposed in January 2022, would require DeFi projects to file regular filings with the SEC, require mandatory disclosures, and impose strict restrictions on how they operate.
The proposed rule can be read as “a recognition that the current regulatory environment does not clearly address DeFi,” said Schulp of the Cato Institute.
“Obviously by proposing that rule, the SEC thinks they have authority. I would disagree with that and a lot of people would disagree with that,” Schulp said. “The fact that they will proceed with the DeFi exchange case before the rules are implemented is truly intriguing and disappointing, especially considering the calls for regulatory clarity over the past few years.”
potential trash
BakerHostetler’s Goody Guillén said next steps will depend on which judge is assigned to the case.
“Different judges have different opinions and that’s how circuit splits are created, which can be resolved in the U.S. Supreme Court.” She said.
Judges all differed in how they made decisions in cryptocurrency cases. separation From programmatic sales to siding with the SEC on some cryptocurrencies, including algorithms, halting institutional sales. stablecoin.
John Aughenbaugh, an associate professor at Virginia Commonwealth University, said the administration is struggling to regulate industries that do not easily fit within the SEC’s current regulatory authority.
“For the SEC to investigate Uniswap or any other cryptocurrency exchange, it would have to make and justify a claim that the company operating that exchange is in fact selling bonds or other security instruments that fall within the SEC’s authorizing laws and regulatory authority,” Aughenbaugh said. . In an email to The Block.
If the company got the “right” judges, the SEC would be shaken, the professor added.
“Therefore, until Congress clearly passes legislation on this issue, it is not clear whether the SEC has the authority to regulate cryptocurrency markets (such as those operated by Uniswap Labs) and whether federal courts will legally bless its efforts. “Whether or not is the question, in this regard,” he said.
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