SEC Reassesses: Considering Bringing DeFi under Exchange Regulation

The U.S. Securities and Exchange Commission (SEC) held a meeting on Friday to reopen public comments on the proposal to expand the definition of "exchange," which would explicitly apply existing exchange rules to decentralized cryptocurrency platforms. Decentralized finance (DeFi) platforms allow users to engage in lending and savings with digital assets without the need for traditional financial intermediaries like banks and exchanges.

SEC Expands Oversight: Cryptocurrency Brokers May Be Considered Exchanges

The proposal was initially introduced in January 2022, planning to broaden the definition of exchanges to platforms using communication protocols, such as quote request systems. Once this change is adopted, it is expected that the market will encompass more regulatory objects, rather than just concentrating orders from numerous buyers and sellers on traditional exchanges.

The proposal aims to regulate the government bond market and other government securities markets, where cryptocurrency brokers play the role of exchanges but are not registered as such. However, cryptocurrency companies have expressed opposition to this plan amid increasing tensions with regulatory authorities. Many industry insiders believe that current securities regulations are inadequate and that the industry needs new rules.

SEC Broadens Regulatory Scope: DeFi Platforms Affected

This week, SEC officials stated that some DeFi platforms may be considered exchanges under the proposed definition, while some are already considered exchanges under the existing definition. Officials estimate that about a dozen cryptocurrency companies will be bound by the expanded definition, but they did not disclose specific companies involved.

SEC Chairman Gary Gensler stated on Friday that regardless of whether cryptocurrency trading platforms claim to be decentralized, most of them fit the current exchange definition.

A public vote reopening a 30-day public comment period on Friday was quite rare. Typically, the SEC decides behind closed doors whether it is necessary to extend the public comment period. This meeting highlighted ideological differences among the commissioners, with both Republican commissioners opposing.

This public vote reflects the tense relationship between the cryptocurrency industry and regulatory authorities, indicating significant challenges in formulating regulations applicable to this emerging industry. In the coming weeks, the public will have the opportunity to comment on this proposal, which will help determine how the SEC adjusts its regulatory strategy to adapt to the rapidly changing cryptocurrency market. In this process, seeking a balance between innovation and protecting investors' interests will be the regulatory agency's top priority.