The new regulation would demand those trading on exchanges to register, which is against the nature of those decentralized platforms. The bill has not yet become official but has already led to rejection and public explanations.
Non-profit organization Coin Center, which focuses on analyzing cryptocurrency regulations, commented on the new amendment by the US Securities and Exchange Commission (SEC). They stated that it includes sensitive changes hidden by complex language that make it unconstitutional.
Through a letter, Coin Center presented its position on a bill by the SEC to modify the regulation on the Alternative Markets System. That organization questions how they define the term exchanges, the platforms where people can trade crypto assets.
The new SEC bill violates the First Amendment of the US Constitution, which protects the right to free expression and meeting. It demands a registration obligation for using cryptocurrency exchanges, according to Coin Center.
The conceptual trap that Coin Center observed in the bill is the change in the definition of an exchange. It replaces the concepts of gathering orders and using methods with those of bringing together buyers and sellers and providing communication protocols.
Coin Center considers that the SEC does it covertly, appealing to legal technicalities based on legal background. In addition, the former said that the Supreme Court of Justice would rule against the new regulation as soon as the government agency introduced it.
The letter sent by Coin Center also highlights that the terms cryptocurrencies and decentralized finance do not appear in the SEC bill.
The definition proposed by the SEC would affect developers or distributors of decentralized exchange (DEX) software if they did not register. Those platforms precisely operate without intermediaries and do not require their users to provide personal data.
The SEC May Not Have Changed Its Position on Cryptocurrencies
In early 2022, the SEC seemed to be more permissive toward cryptocurrencies after Gary Gensler became its Chair. That was evident in the lower number of legal actions against cryptocurrency projects compared to previous years.
However, the amendment to the current regulation could mean the SEC is taking a step in the opposite direction. If they introduced the bill questioned, it could be an attempt to adjust the current regulation on cryptocurrencies.
Decentralized Exchanges Provide Users with More Privacy
Decentralized exchanges often fall into the decentralized finance (DeFi) category, as they connect users directly, without intermediaries.
That allows them to trade on them directly, without registering or providing personal data, from their wallets.
While traditional/centralized exchanges (CEX) subject their users to the determinations of the companies controlling them, DEXs provide users with more privacy. They use multi-signature transactions and smart contracts, among other methods, to offer security when operating.
Since cryptocurrency regulations have increased, the services providing greater freedom when managing funds have grown in popularity.
Between 2019 and 2021, DEX users conducted much larger transactions than centralized exchanges. The average amount traded on those platforms was over USD 26,000 worth of cryptocurrencies, compared to USD 12,000 on CEXs.
By Alexander Salazar
