Coinbase has recently submitted a comment letter to the US Securities and Exchange Commission (SEC) expressing strong opposition to the agency’s proposal to broaden the definition of “exchange” to include decentralized exchanges (DEXs).
In the letter addressed to SEC Secretary Vanessa A. Countryman, Coinbase Chief Legal Officer Paul Grewal argued that the proposed rule is flawed in both its conception and execution. This move could potentially stifle innovation and place unworkable compliance burdens on DEXs.
Coinbase’s main concern is that the SEC’s proposed expansion of the exchange definition is primarily targeting DEXs, which enable trading in digital assets without a central intermediary. The company warns that the rule could impose unattainable requirements on DEXs, potentially forcing them out of the US market.
The exchange also raised issues regarding the recent Supreme Court ruling in Loper Bright Enterprises v. Raimondo, which overturned the Chevron deference. This ruling questions the legality of the SEC’s proposed rule extension to DEXs, especially considering the agency’s admitted lack of understanding of how DEXs operate.
Coinbase criticized the SEC for basing its cost estimates on traditional, centralized entities, which differ significantly from decentralized platforms like DEXs. The company argues that DEXs, operating without a centralized group, cannot conform to current registration and disclosure requirements, rendering the SEC’s compliance cost assumptions unrealistic and misleading.
Coinbase is urging the SEC to retract the proposed rule and carry out a comprehensive and rational evaluation of the economic impacts before proceeding with any further regulatory measures. The company warned that the current rule could prompt DEXs to exit the US market, depriving American users of the advantages of decentralized financial systems.
The letter concluded with a plea for the SEC to re-notice the rule, allowing for meaningful input from stakeholders after the agency has gathered and evaluated the required information. Coinbase emphasized the need for any regulations in this realm to be grounded on a precise and consistent definition of securities in the digital asset market, a determination the SEC has yet to establish.
Through its detailed and comprehensive letter to the SEC, Coinbase has demonstrated a staunch opposition to the proposed expansion of the exchange definition to include DEXs. The company’s arguments highlight the potential negative impact this rule could have on innovation, compliance burdens, and the overall competitiveness of the American financial sector. Coinbase’s call for a more thorough assessment and a clear regulatory framework based on the unique characteristics of decentralized platforms underscores the importance of thoughtful and informed policymaking in the rapidly evolving crypto market.
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