The SEC introduced new rules affecting liquidity providers in the DeFi space.
The DeFi Education Fund criticized the move, calling it "misguided and unworkable".
The SEC Chair Gary Gensler defended the regulatory changes, highlighting the $50 million exception and the importance of protecting investors.
On February 6, the United States Securities and Exchange Commission (SEC) introduced new rules affecting liquidity providers. These regulations go beyond federal securities laws, also impacting the cryptocurrency and decentralized finance (DeFi) sectors.
Read more about the developments below.
Changes for DeFi Trading
After being proposed in March 2022, the SEC approved the 247-page rule with a 3-2 majority vote during a Tuesday meeting. The rule will affect those dealing with crypto assets defined as securities or government securities, excluding entities with less than $50 million in assets.
The rule specifies that individuals trading crypto asset securities within the DeFi market must register as a “dealer” or “government securities dealer” if their activities meet the criteria of being part of a regular business. This includes regularly buying and selling crypto assets and providing liquidity to others, as outlined in the qualitative standard.
Also Read: John Deaton Challenges Security Status of Bitcoin, Ethereum, and XRP Amid New Crypto Regulations
Backlash from DeFi Advocates
Despite the approval, some argue that the rule is unfair for DeFi products due to their decentralized nature. The DeFi Education Fund criticized the move, calling it “misguided and unworkable.” CEO Miller Whitehouse-Levine believes the SEC overlooked the practical difficulties faced by DeFi entities, making the rules unfriendly to innovation.
Cody Carbone, Vice President of Policy for the Chamber of Digital Commerce, shared similar sentiments, criticizing the SEC for its ongoing unfriendliness towards the digital asset industry. He stated that the SEC did not consider the industry’s viewpoint.
Gensler Puts Up the Defenses
SEC Chair Gary Gensler defended the regulatory changes, highlighting the $50 million exception and the importance of protecting investors in both crypto and non-crypto spaces. During the meeting, Republican Commissioner Hester Peirce, one of the two votes against the rules, raised questions about the inclusion of automated market makers (AMMs) in the rules, expressing concerns about transparency and market participants’ understanding.
Countdown to Implementation
The final rules will come into effect 60 days after being published in the Federal Register, with a one-year compliance period. As the crypto industry prepares for increased regulatory attention, the full impact of these SEC rules remains uncertain in decentralized finance.
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