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The US Securities and Exchange Commission (SEC) has adopted regulations for firms that act as dealers to register with the Commission. A lawyer explained that in a report to Decentralized Finance (DeFi) with securities regulatory rules, which clearly require Liquidity Providers (LPs) of Decentralized Exchanges (DEX) to have at least $50 million in assets.
The US Securities and Exchange Commission (SEC) has adopted regulations for firms that act as dealers to register with the Commission. A lawyer explained that in a report to Decentralized Finance (DeFi) with securities regulatory rules, which clearly require Liquidity Providers (LPs) of Decentralized Exchanges (DEX) to have at least $50 million in assets.
Concerns have grown over the SEC's revised dealer rules
The US Securities and Exchange Commission (SEC) last week adopted policies to include certain significant market participants as 'dealers'. "I am pleased to adopt this policy because firms that act as dealers are required to register with the Commission as dealers," said SEC Chairman Gary Gensler.
"Securities Act gives the SEC the authority to regulate 'dealers', 'any person who, for his own account, engages in the business of buying and selling securities,'" said Jack Chervinsky, Variant's chief legal officer. He pointed out that the new rule targets decentralized finance (defi), particularly Liquidity Providers (LPs) of Decentralized Exchanges (DEXs), meaning large market makers like Citadel etc:
The SEC finalized its proposed 'dealer' rules targeting Decentralized Finance (DeFi), which specifically require Liquidity Providers (LPs) of Decentralized Exchanges (DEX) to have at least $50 million in assets.
Chervinsky explained that the SEC proposed this dealer rule two years ago. He cautioned that "the proposed rule does not hold any legal explanation, it is much broader than the definition of 'dealer' narrate in the document, which would limit the SEC's authority." It also makes no policy sense, it reverses decades of precedent by capturing people who cannot and should not register as dealers."
Chervinsky added: "The SEC has received many comment letters criticizing the proposal under the Administrative Procedure Act, for inhibiting innovation, for violating the SEC's statutory authority, and for violating various statutory requirements."
Unfortunately, the SEC finalized the rule anyway, with an exception for those with net worth less than $50 million.
He continued “It's going to come into effect in 2025, and that's assuming it survives court scrutiny. I hope it won't be long before someone files a lawsuit. Even if it were effective, it would not give the SEC jurisdiction over decentralized finance. The SEC's claim of authority over decentralized finance (Defi) dealers rests on the premise that digital assets are collateral. That core issue is the subject of lawsuits all over the country, and the SEC is losing most of them."
Note that the digital assets industry is engaged in a confidence-building effort to address concerns in the Securities and Exchange Commission's rulemaking process to update the definition of 'dealer'.
Unfortunately, the Final Act makes little attempt to engage constructively with industry concerns, enforcing an ineffective rule that destroys an established framework in favor of an amorphous focus on whether an individual acts as a 'de facto' market maker.
The revised 'dealer' definition imposes impossible requirements on decentralized finance schemes, provides no transparency to market participants and could lead to disruptive innovation across the digital asset ecosystem, warned Koppel.
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