Coinbase is pushing back against the SEC’s proposal to redefine exchanges to include decentralized exchanges (DEXs). The SEC’s proposal has sparked criticism from Coinbase and other industry players, with concerns about stifling innovation and imposing compliance burdens on DEXs.
In a letter to SEC Secretary Vanessa A. Countryman, Coinbase’s Chief Legal Officer Paul Grewal argued that the proposed rule is fundamentally flawed and lacks a sufficient cost-benefit analysis. The company believes that the SEC’s focus on regulating DEXs could have severe economic impacts on the crypto market and hinder technological progress.
Coinbase highlighted the recent Supreme Court ruling in Loper Bright Enterprises v. Raimondo, which questioned the legality of the SEC’s proposed rule. The company pointed out that the ruling diminishes the likelihood of courts upholding the SEC’s attempt to extend regulations to DEXs, especially given the agency’s lack of understanding of how DEXs operate.
The exchange criticized the SEC for basing its cost estimates on traditional, centralized entities, which are fundamentally different from decentralized platforms like DEXs. Coinbase argued that DEXs cannot comply with existing registration and disclosure requirements, making the SEC’s assumptions about compliance costs unrealistic and misleading.
Coinbase is urging the SEC to withdraw the proposed rule and conduct a more thorough assessment of the economic impacts before taking further regulatory action. The company warned that the current proposal could drive DEXs out of the US market, depriving American users of the benefits of decentralized financial systems.
The letter concluded with a request for the SEC to re-notice the rule and gather input from stakeholders after obtaining the necessary information. Coinbase emphasized the importance of a clear and consistent definition of securities in the digital asset market before implementing any regulations in this space.