Coinbase’s third comment letter to the US Securities and Exchange Commission (SEC) highlighted significant flaws in the SEC’s cost-benefit analysis of the proposed rule. The letter argued that the agency failed to assess the rule’s economic impact on efficiency, competition, and capital formation. Despite acknowledging a lack of critical information on decentralized exchange (DEX) operations and compliance costs, Coinbase expressed concerns that the SEC’s proposed benefits may not materialize, particularly if DEXs are driven out of the US market.
Paul Grewal, Coinbase’s chief legal officer, emphasized that the SEC should withdraw the proposal and conduct thorough research before proceeding. The letter also criticized the SEC for failing to fulfill its statutory obligations by not gathering essential information on DEXs, admitting gaps in understanding key aspects of their operation, and making unjustified assumptions based on non-DEX entities. The arbitrary and irrational approach taken by the regulatory entity in assessing DEXs was underscored by Coinbase.
Coinbase raised concerns about the SEC’s inconsistent approach to classifying digital assets as securities, noting that the agency’s reliance on case-by-case litigation rather than clear rules has created uncertainty for industry participants and courts. The proposed changes, according to Coinbase, have further exacerbated this uncertainty by ambiguously stating that digital assets may or may not be securities. This lack of clarity undermines the reliability of the SEC’s cost-benefit analysis, as per Coinbase’s critique.
In addition to highlighting the potential negative impact of the proposed rule on DEXs, Coinbase also mentioned the adverse effects on its services, such as the Base network and wallet offerings. The possibility of pushing DEXs out of the market could disproportionately affect smaller exchanges due to high compliance costs, giving larger incumbents an unfair advantage. The vague language of the proposal adds to the compliance burden, with the SEC ignoring assessment costs that have been recognized in the past, raising further questions about the validity of the rule’s cost analysis.
Overall, Coinbase’s critique of the SEC’s proposed rule brings to light significant flaws in the agency’s cost-benefit analysis and highlights the need for thorough research and clear guidelines to reduce uncertainty and promote fairness in the regulatory landscape.
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