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On blast: The U.S. Securities and Exchange Commission (SEC) is again feeling the heat from an unhappy crypto industry, with Coinbase chief legal officer Paul Grewal blasting the regulator over its proposal to update its definition of an exchange, saying the SEC is "going beyond its authority."
Catch up: The SEC proposal, published in January, would expand the definition of an exchange to include "systems that offer the use of non-firm trading interest and communications protocols to bring together buyers and sellers of securities." Since the proposal was announced, crypto companies have been lobbying to have it amended, however, SEC chair Gary Gensler has said the proposals would modernize guidance linked to "the definition of an exchange to cover platforms for all kinds of asset classes that bring together buyers and sellers."
Fundamentals: "The fundamental problem: the SEC is going beyond its authority under the Exchange Act in redefining exchange. An exchange is a facility that performs the 'functions of a stock exchange, as that term is generally understood'," Grewal posted to Twitter. "The proposed definition is so broad that it could potentially encompass several types of systems that are in no way 'generally understood' to perform the functions of a stock exchange."
Devil in the detail: According to Grewal, the new definition is broad enough to apply to decentralized finance (DeFi) platforms but did not consider how the new rule would impact decentralized exchanges or other DeFi protocols. "Despite spanning over 600 pages, the Proposed Rule, including the economic analysis, contains no such discussion with regard to digital asset securities or DEXes," Grewal wrote in a comment letter seen by Decrypt.
Trade bodies weigh in: Michelle Bond, the chief executive of crypto trade group the Association for Digital Asset Markets (ADAM), has also written to the SEC this week, complaining the proposal goes too far. "If adopted as proposed without a carve out for digital assets, the proposed revisions to Exchange Act will hinder innovation, competition, and capital formation in an industry in which the United States cannot afford to cede ground to other countries," Bond posted to Twitter alongside a public letter to the SEC. Earlier this week, D.C.-based crypto lobby group Coin Center submitted its own comment letter, arguing that the SEC’s proposed rule would be "unconstitutional."
Encumbered in the EU: European crypto companies are unhappy with anti-money laundering proposals the European Union has put forward, calling them "burdensome" and "alarming" in a letter to finance ministers and lawmakers. The letter, seen by Coindesk and signed by academics, lobby groups and senior executives from companies such as Ledger, Aave and Blockchain.com, says current proposals to identify crypto users, known as the travel rule, endanger privacy and innovation in the EU. "The proposals from the European Parliament, by leading to the public disclosure of all transactions and digital asset wallet addresses, will put every digital asset owner at risk” and "risk derailing years of preparatory work and the future of web3" in Europe, said the letter, dated April 13.
The bottom line: Regulation is a tightrope walk between encouraging innovation and protecting people—and is by nature reactive. Crypto's unbridled growth is being reined in around the world and to whatever degree that happens, it's going to be a painful readjustment for the industry.
Good to know: Robinhood has revived its plans for international expansion, buying the U.K.-based crypto app Ziglu
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