Crypto venture capital firm Paradigm has criticized the United States Securities and Exchange Commission (SEC) for attempting to redefine the term “exchange” in a way that would bring decentralized exchanges (DEXes) under its regulatory purview.
The SEC aims to revise the Securities Exchange Act of 1934 to include DEXes and decentralized finance (DeFi) platforms within the definition of an “exchange.” Paradigm argues that treating DEXes as exchanges is “invalid and incoherent” due to the fundamental differences between the two.
Paradigm’s legal counsel contends that the SEC is inappropriately attempting to regulate crypto trading platforms, including DEXes, as securities exchanges through haphazard rulemaking. The firm argues that DEXes do not function as intermediaries and lack the traditional organizational structures that characterize exchanges. Instead, DEXes rely on market-making algorithms and self-executing code to facilitate decentralized trading.
The SEC has recently filed lawsuits against major crypto exchanges, including Binance and Coinbase. The agency has also taken action against numerous digital assets, considering them securities. However, official legislation specifically classifying crypto markets as securities has yet to be passed by Congress.
Enforcement actions by the SEC targeting crypto companies have reportedly increased by 183% in the six months following the collapse of FTX, according to Cointelegraph.
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