Experts say that the SEC’s new distribution rules focused on LPS will be challenged in court
On February 6, the United States Securities and Exchange Commission (SEC) approved new rules redefining “dealer” and “dealer of government securities.” The new regulations, which will first be proposed in 2022, will require many crypto market participants to register, join a self-regulatory organization and comply with federal securities laws.
The new SEC regulations have garnered a lot of criticism from the crypto community, the decentralized finance (DeFi) ecosystem, and pro-crypto politicians. Since the rules were first proposed two years ago, the crypto community has protested, citing a lack of clarity in the definition of crypto securities.
Much of the criticism stems from the definition of dealer, which could force moneylenders to register as securities dealers. Therefore, all liquidity providers controlling more than $50 million in capital must register with the SEC.
SEC Commissioner Hester Pearce said in a statement that she “could not support the final rule because the definition of trader is inconsistent with the statutory framework and distorts market behavior, impairs the quality of the market, and turns traders, many of whom are customers, into sellers.”
“In addition to hurting market participants who turn into sellers, this regulation hurts the broader market. It penalizes liquidity, meaning it becomes less. The penalty comes from an expensive and disproportionate regulatory system for liquidity provision to market participants.”
Many DeFi fans and crypto experts have shared their concerns about the new rules on social media. Gabriel Shapiro, general counsel of Delphi Labs, explained how the new rules will affect liquidity providers, explaining the interaction between Pierce and SEC staff on the vendor registration requirements.
The most important takeaway from today's SEC hearing is that SEC staff said the new broker-dealer rule would require all LPs to register as securities dealers in the AMM. Below is a description of @HesterPeirce's staff motivational question:
Staff: “It's AMM…
— _gabrielShapir0 (@lex_node) February 6, 2024
Cointelegraph contacted Shapiro to understand whether all liquid providers with $50 million in assets under management (AUM) qualify as securities traders. Not all liquidity providers do it, but the tokens in the pool depend on whether they are securities or traded through the pool. Shapiro explained.
“At the moment, all these issues are being debated in general (Coinbase, Kraken litigation) authorized trading of tokens on the secondary market) and specifically (asset-by-asset).”
Bill Hughes, Senior Advisor and Director of Global Regulatory Affairs at Consensys, told Cointelegraph that the new law makes it even more important to have real, sustainable and workable transparency about what securities crypto assets are under US law.
RELATED: DeFi Offers SEC Good Regulatory Challenge, Says Commissioner Pearce
He added that the new rules on crypto will have a significant impact on securities markets and will be challenged in federal court.
You can expect many parties from different industries to seek judicial review. And the SEC's recent record in such cases is poor. He [is] It is surprising that the SEC has no interest in providing such transparency. In the short term, the public's only hope remains that Congress will act.
According to Hughes, the SEC has faced a lot of judicial pressure regarding its actions against crypto companies. Ripple, Grayscale and, most recently, Coinbase have challenged the SEC's actions in court.
Crypto proponents have highlighted the SEC's reluctance to clarify crypto regulations despite years of requests from both the community and policymakers. Now, experts believe the most recent rulemaking aimed at liquidity providers could face judicial review.
Magazine: How Crypto Wendy Can Defeat the SEC, Sexism, and Underdogs: Hall of Flames
