Providing liquidity will be seen as acting as a "securities dealer," Blockchain Association sues SEC

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Blockchain Association Sues SEC

According to an announcement by the Blockchain Association, the association has partnered with the Crypto Freedom Alliance of Texas (CFAT) to file a lawsuit against the U.S. Securities and Exchange Commission (SEC) regarding the new definition of "securities market dealers."

The lawsuit was filed in the Northern District of Texas aiming to challenge and overturn the SEC's dealer rule. It accuses the SEC of violating administrative procedure law by unlawfully expanding the definition of "dealers" in the 1934 Securities Exchange Act.

LPs Classified as Securities Dealers

In February of this year, the SEC's new framework defined Liquidity Providers (LPs), commonly found in DeFi, as dealers, subjecting LPs to regulatory requirements similar to traditional securities market dealers.

The new dealer definition by the SEC has sparked strong protests in the crypto space, with SEC Commissioners Hester Pierce and Mark Uyeda expressing opposition.

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Blockchain Association: New Framework Unworkable

Kristin Smith, CEO of the Blockchain Association, believes that the new framework is "unworkable rules" for the crypto space and will hinder innovation in the digital asset ecosystem.

He stated:

Even though the SEC is legally required to respond, the SEC has ignored concerns raised during the public comment period and in comment letters. This is another example of the SEC attempting to unlawfully regulate beyond its jurisdiction, shortening the comment period and avoiding a flood of critical comments. This has illegally redefined the statutory authority granted by Congress, threatening to drive U.S. companies overseas and instill fear in American entrepreneurs.

The Blockchain Association had previously submitted comment letters to the SEC in 2022, pointing out inconsistencies between this framework and the SEC's existing guidance.

U.S. SEC Plans to Expand Definition of "Securities Dealers" to Include Digital Assets, Crypto Industry Fears DeFi May be Half-Dead and Abandoned