SEC commissioner slams new exchange law targeting DeFi

US Securities and Exchange Commission Commissioner Hester Pierce has criticized the regulator for his new rules that seek to amend the definition of a “stock exchange”.

On April 14th statementPierce criticized the proposal and the current leadership of the SEC, saying, “The Commission is aggressively expanding its regulatory scope to solve problems that do not exist.”

“Instead of embracing the promise of new technology as we have in the past, we here propose to embrace stagnation, centralize power, expatriate incitement, and welcome the extinction of new technology.”

Proposal of the Supreme Education Council

The SEC decided to reopen the hold period to make amendments to Exchange Act Rule 3b-16 regarding the definition of an “exchange.” The decision comes after several crypto companies questioned the amendments.

With the amendment, decentralized platforms will be subject to SEC oversight. The plan was first proposed in January 2022 and specifically suggested that exchanges now include platforms using “communication protocols”. At the time, the ambiguity of the term was a concern to many.

Meanwhile, SEC President Gary Gensler Believes The current definition of an exchange already covers many crypto platforms, including those that claim to be decentralized.

What Commissioner Pierce thinks

In her statement, the SEC commissioner noted that the regulator failed to define a “communication protocol system.” Instead, the SEC asked commentators if they wanted more examples and what kind of examples they wanted.

Moreover, Pierce believes that the SEC used the term without considering the effect it could have on hundreds of regulations and the potential market disruption.

Additionally, I wrote, the proposal imposes unwieldy standards for decentralized activity and participants.

While the Law of Exchange defines an exchange as “an organization, association, or group of people,” the definition struggles to apply to DeFi, where the marketplace is software, and the participants may not know each other.

Pierce noted that the SEC failed to consider whether compliance was possible before creating these rules. She added that this indicates an attempt to regulate decentralized finance to non-existence.

Pierce said, “Instead of (the SEC) responding to commenters’ serious concerns about the proposal’s breadth, vagueness, unworkability, and potential disruption, the reopener is, with few exceptions, doubling down on the flaws commentators have identified.”

Many cryptocurrency stakeholders applauded Pierce’s statement to address the financial regulator’s increasing oversight of cryptocurrencies. The SEC has come under fire for its “regulation by enforcement” approach to the industry.


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