Digital assets exchange Coinbase (NASDAQ:COIN) claims it has found flawed or inaccurate analysis in the US Securities and Commission’s (SEC) proposed definition of an exchange.
In its official letter addressed to the SEC, the digital currency exchange stated that it will withdraw the proposal, which was initially introduced back in 2022, and begin the process once again.
Today we’re also addressing the SEC’s refusal to produce the full record of its inconsistent views of digital assets and its own regulatory reach. Does a defendant to a suit by its own government deserve transparency about the facts of the case? We think the answer is obviously…
— paulgrewal.eth (@iampaulgrewal) August 12, 2024
Coinbase has issued another letter to the SEC pertaining to the regulator’s suggested updates to the definitions of a national securities exchange.
This is notably Coinbase’s third such comment letter and it is primarily focused on the US regulator’s cost-benefit analysis of the suggested changes.
The SEC does not have the relevant information to carry out a cost-benefit analysis and relies on illogical assertions/arguments instead, Coinbase claims.
The SEC needs to take back the proposal and begin the process all over again once the agency has carried out proper research, according to Coinbase Chief Legal Officer Paul Grewal.
Coinbase’s latest comment letter on a proposed rule change to the definition of an exchange is now part of a lengthy legal battle between the leading US crypto firm and the SEC.
A cost-benefit analysis is needed for the proposal under the Administrative Procedure Act as well as the Exchange Act of 1934, Grewal explained.
The letter also mentioned certain details that the SEC acknowledges that it is not familiar with, beginning with the actual definition of a “crypto asset security” and the number of exchange platforms doing business currently in the market and finds:
“It is … impossible to see how the Commission could … have discharged its statutory and procedural obligations to regulate in light of the best available information when the Commission admits that on many key issues it has little or no information at all.”
Grewal added that so-called decentralized exchanges or DEXes may not be able to satisfy the suggested disclosure guidelines for operating a national securities exchange in a compliant manner and it may be quite challenging for a DEX or centralized virtual currency exchange to do business while adhering to the proposed definition/guidelines:
As noted in the update:
“The SEC currently limits a registered exchange to offering only securities. But there are almost no registered digital-asset securities, because digital-asset developers separately cannot comply with the Commission’s inapt issuer regulations.”
It’s worth noting that without a thorough understanding of what qualifies as a crypto asset security, no proper cost-benefit analysis can be carried out, Grewal explained.
He also commented on the US regulator’s suggestion that a cost baseline for DEXes may be inferred / assumed from that of other kinds of exchange service providers.
The SEC proposal has been circulating around since the past couple years.
Its initial version didn’t make mention of any DEXes, however, crypto policy organiztion Coin Center said earlier that by introducing communication protocol systems under the said definition of exchange, the US regulator may require/expect DEXes to register with the agency.
The SEC has also expressed its intention and potetnial plans to further update the proposal to decentralized finance (DeFi) as well.
The Blockchain Association along with Republican members of the House of Representatives Committee on Financial Services have submitted their own feedback that is critical of the SEC’s proposal.
Meanwhile, leading DEX (or decentralized exchange) operator Uniswap noted in a comment last month that the US Supreme Court’s June Chevron decision suggests that the US securities regulator had been proposing the latest definition against a legal backdrop which does not exist anymore.