The U.S. Securities and Exchange Commission [SEC] has introduced new rules that would now extend its jurisdiction to decentralized exchanges [DEXs]. The ruling, passed by a 3-2 majority, mandates that market players engaged in government bonds and digital asset transactions must register as broker-dealers. This move has set alarm bells ringing as it reflects the SEC’s stricter oversight of the previously unregulated landscape of decentralized trading platforms.
Reports suggest that the regulator’s decision is part of a wider effort to address structural concerns contributing to liquidity issues within the $26 trillion Treasury market. Notably, it focuses its attention on proprietary traders, who are identified as “critical sources” of Treasury market liquidity. The regulator contends that subjecting these traders to equivalent oversight and risk management controls as traditional Treasury market dealers is essential.
Gary Gensler, the SEC chair, expressed his support for the new rules, emphasizing their common-sense approach to market integrity. The 247-page rule was not new and was initially proposed in March 2022, but was finalized on January 6 and might go into effect by 2025 if approved. Market participants anticipate that these changes represent the most substantial transformation of the Treasury market in decades.
However, not everyone welcomes the SEC’s move. Critics argue that the rules are overly broad, imposing unwarranted burdens on market players. In particular, voices from the crypto community have expressed concern about the potential impact on decentralized finance [DeFi] platforms.
SEC New Rules: Crypto Backlash
One commentator highlighted that the rules could force liquidity positions exceeding $50 million on DEXs to register with the SEC, a development that coincides with the rising demand for decentralized platforms.
This is 100% unenforceable DEX’es will simply decentralize even further and algorithmically maintain sub $50M capital each There’s gonna be automated oracles that rebalance DEX’es to keep them below the SEC dealer threshold I don’t think the powers that be fully grasp the disruptiveness of DeFi yet.
Skeptics within the crypto space assert that the regulations are impractical and foresee DEXs further decentralizing and implementing automated mechanisms to maintain capital below the SEC’s threshold. The sentiment echoes a belief that the regulatory authorities may not fully comprehend the disruptive nature of DeFi, with potential technological adaptations to circumvent the rules already being discussed within the community.