On June 13th, leading US cryptocurrency exchange Coinbase voiced its opposition to the US Securities and Exchange Commission’s (SEC) proposal to regulate decentralized exchanges (DEXs) in the same manner as centralized exchanges. In a letter submitted to the SEC, Coinbase’s Chief Legal Officer, Paul Grewal, detailed the company’s objections to the proposed regulations.
Grewal argued that it is impractical to require decentralized exchanges to comply with registration requirements similar to those imposed on domestic stock exchanges. He contended that this request violates the Administrative Procedure Act (APA), as the SEC failed to explain how existing rules could be applied to DEXs. Grewal highlighted the SEC’s lack of clarity and stated that the proposal should not be adopted without completing necessary rulemaking procedures.
Furthermore, Grewal explained the unique characteristics of decentralized exchanges, emphasizing that there is no single accountable entity responsible for compliance. Unlike traditional exchanges, decentralized exchanges operate through decentralized autonomous organizations (DAOs) without centralized coordination or hierarchical leadership. Grewal underscored that governance token holders typically make decisions regarding specification changes in decentralized exchanges.
While the SEC argues that a governing body exists within decentralized exchanges, it has not provided a clear definition of such a body. Grewal pointed out that in truly decentralized systems, the only group the SEC could potentially regulate is the group of governance token holders. However, not all token holders possess the necessary capabilities to fulfill extensive compliance obligations, and decentralized exchanges lack traditional executive officers or securities professionals.
Coinbase maintains that the SEC’s proposal fails to address these fundamental differences between centralized and decentralized exchanges. The company also asserts that despite previous notifications from Coinbase and other entities highlighting non-compliance and substantial issues with the proposed regulations, the SEC has not altered its stance.