When the Securities and Exchange Commission (SEC) first launched its consultation on updating the definition of an ‘exchange’ in January 2022, many debated whether this might include DeFi exchanges. On Friday, the SEC reopened the consultation and not only explicitly included DeFi, but asserted the existing definition often would likely cover DeFi as well. However, Chair Gary Gensler does not have the support of the two Republican SEC Commissioners, although the three Democrat Commissioners have a majority.
Yesterday the SEC also filed a lawsuit against the Bittrex crypto exchange. It follows a Wells notice sent to the Coinbase crypto exchange last month, warning of impending legal action regarding operating an unlicensed exchange because the SEC considers many of the cryptocurrencies traded as securities, as well as staking services.
Circling back to the definition of an “exchange”, a significant chunk of the newly published supplemental information is dedicated to DeFi. The SEC believes these systems qualify because it considers most crypto assets as securities and many DeFi protocols “likely meet the current criteria” for an exchange.
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