New rules adopted by the US Securities and Exchange Commission (SEC) dictate that companies acting like dealers have to register with it.
According to a lawyer, the new rules are aimed at decentralized finance (DeFi), as they explicitly target the liquidity providers of the decentralized exchanges (DEX) with assets of at least $50 million.
The new rules
Gary Gensler, the chairman of the SEC, said that the new rules would ensure that significant market participants who act as dealers register with the Commission.
Chief legal officer at Variant, Jake Chervinsky, said that the new securities laws define dealers as anyone engaged in purchasing and selling securities.
This would apply to big market makers, such as Citadel. He further added that decentralized exchanges that have liquidity of around $50 million in assets had been targeted by the said rules.
According to Chervinsky, the dealer rule was first been proposed by the securities regulator two years ago, but it does not make sense.
He stated that this broadened the definition of dealer that is stated in the Statute, which limits the authority of the SEC.
He also added that it did not make sense to overturn a precedent that had been applicable for decades, only for targeting people who should not and cannot register as dealers.
The criticism
The lawyer asserted that the proposal had been criticized by many for hampering innovation because it exceeded the statutory authority of the SEC.
Moreover, it was also said to violate several rulemaking requirements mentioned under the Administrative Procedure Act.
However, he said that this had not stopped the SEC from moving forward and they had finalized it, with the only exception being those with assets less than $50 million.
The expectation
According to the lawyer, the new rules would go into effect in 2025, as long as they can withstand scrutiny in court because lawsuits could be filed against them.
He continued to say that even after the rules go into effect, the regulator still would not have authority over DeFi.
This is because the SEC’s claim of digital assets being securities is currently the subject of litigation and the regulator has been unable to prove this.
Marisa Coppel, the Head of Legal at the Blockchain Association, said that the final rule the SEC has introduced does not address the industry concerns constructively.
She said that it is an unworkable rule, which goes against an established framework. Coppel said that the requirements imposed by the new ‘dealer’ definition on DeFi projects are impossible.
She also added that it could result in withering innovation in the crypto market because it would give rise to many issues.
The new rules that the SEC has adopted have received criticism from crypto proponents, given that they still do not provide clarity to the market.