“Decentralized” Exchanges Not Safe From the SEC’s All-Seeing Eye!
2018 has been a busy year for regulators trying to monitor and control the blockchain and cryptocurrency sector. We know the overall stance of the SEC/CFTC after the hearing regarding digital assets, and for the time being, Bitcoin, Ethereum, and other popular cryptocurrencies are not deemed as securities.
SEC Chairman Jay Clayton: “I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings… we should regulate them like we regulate securities offerings. End of story.”
The SEC openly admits that it deems ICOs as securities, therefore exchanges and ICOs must register under the SEC or face legal action. In reaction to this, the crypto community sought decentralized exchanges as the answer for maintaining privacy from exchanges under the influence of government.
However, this may not be the case as many thought. On November 8th, 2018, Zachary Coburn, founder of Ethereum smart contract-based exchange EtherDelta, was charged with operating an unregistered securities exchange, according to an announcement by the SEC.
EtherDelta allows users to trade Ethereum and Ethereum-driven tokens (also known as ERC-20 tokens) in a decentralized environment. How the SEC’s charges will affect daily operations on the exchange remains to be seen…
It’s clear that there are many other exchanges that are much less credible than EtherDelta. Many believe the SEC is trying to prove a point and make an example of Coburn to send a message to the cryptocurrency sector.
Register or Face the Wrath of the SEC?!
Decentralization is a word often taken out of context in this sector. Just how independent are these peer-to-peer exchanges if authorities can potentially have an influence indirectly or otherwise?
According to the SEC’s official report titled “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets,” exchanges must register with the SEC as a “national securities exchange!”
“Over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws.
Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption.
We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology.
EtherDelta offered trading of various digital asset securities and failed to register as an exchange or operate pursuant to an exemption.” – sec.gov
Tread carefully, exchanges, as 2019 will likely only be worse…