Paradigm wants the SEC to withdraw its 'incoherent' proposed definition of exchanges

Quick Take

  • Policy experts at Paradigm criticized that the SEC’s redefinition of a crypto exchange.
  • They said the agency should try to engage with the industry and then try again.

Rodrigo Seira, special counsel at the crypto venture firm Paradigm, and the firm's Policy Director Justin Slaughter commented today on the Securities and Exchange Commission's redefinition of an exchange — claiming it needs to start from scratch.

"The only way for the Commission to arrive at a valid regulatory approach to DeFi is to withdraw its proposed amendments and start again at square one: with a notice of proposed rulemaking that clearly describes its proposed regulatory approach, after genuine engagement with the DeFi industry, a clear-headed assessment of the statutory limits on its authority in this area, and a fulsome analysis of the costs and benefits of the alternative approaches that Congress has actually authorized it to pursue," Seira and Slaughter wrote in the statement. 

"To do anything less is to allow a mortally wounded rulemaking process to stagger forward to the detriment of the Commission, the crypto industry, and the investors the Commission is tasked with protecting," they added.

A key problem with the exchange's proposed definition is that is lumps centralized exchanges and decentralized exchanges under one umbrella, resulting in vague and ambigious terms needed to describe both, Paradigm argued.

On June 6, the SEC sued Coinbase and alleged the firm violated securities regulation by acting as a broker, national securities exchange and clearing house without proper disclosure. Since Coinbase's structure follows a similar structure as Kraken and other crypto exchange giants, the SEC's ruling could potentially have major consequences for the crypto industry. 

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