Consensys Urges Sec To Remove Blockchain Networks From Extended ‘Exchange’ Wording

The company noted that the proposed wording may inadvertently designate some decentralized systems as exchanges. In addition, the regulator did not mention blockchain, cryptocurrencies or DeFi in the document and did not make it clear how the requirements of the Law should apply to the industry.

We (@ConsenSys) have submitted a comment in response to @SECGov ‘s proposal to expand the definition of a securities “exchange” to cover “communication protocol systems”. We encourage you to read it here: https://t.co/NKDXk2hcNz.
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— wchughes.eth 🦊 (@BillHughesDC) April 18, 2022

“It seems highly unlikely to us that the SEC actually wants to extend this rule to blockchain systems, because they are completely different from the centralized exchanges for which the Act was passed,” wrote ConsenSys senior counsel Bill Hughes.

It strikes us as highly unlikely that @SECGov actually wants this rule to cover blockchain systems, because they are entirely unlike the centralized securities exchanges the Exchange Act was enacted to address. 3/21

— wchughes.eth 🦊 (@BillHughesDC) April 18, 2022

In the event that the language deliberately covers decentralized systems, the proposal violates the Securities Exchange Act, the Administrative Procedures Act and the Constitution, the company said.

Regarding the Exchange Act, Hughes noted that its text and purpose are “dramatically at odds” with the Commission’s proposed regulation of potential sellers and buyers.

“Blockchain systems, in particular DeFi, are replacing intermediaries with software. The risks posed by real intermediaries, including abuse of power, are in fact non-existent,” he stressed.

The company felt that the proposed SEC wording “exchange” would cancel the regulatory framework of Congress in this part and leave the society without clearly defined rules.

“The coverage of blockchain systems will leave too many questions unanswered for the proposal to be finalized. The SEC will need to start over and conduct a comprehensive review of its rationale and costs and benefits,” Hughes said.

As for the APA, covering blockchain systems would leave too many questions unanswered for the proposal to be finalized. The SEC would need to start over and provide extensive analysis of its rationale and the costs and benefits. 10/21

— wchughes.eth 🦊 (@BillHughesDC) April 18, 2022

According to him, the Commission’s proposal “regulates speech on the basis of its content”, which is contrary to the principles of freedom of speech guaranteed by the Constitution.

“We remain optimistic that a reasonable resolution to this particular issue will be provided by the SEC in response to public feedback,” Hughes concluded.

Recall that the organization for the promotion and protection of the interests of the blockchain industry Coin Center also called the proposal of the Commission unconstitutional.