TechFlow news — Cryptocurrency investment firm Paradigm today submitted comments to the U.S. Securities and Exchange Commission (SEC) regarding its proposal to redefine the term "exchange." The company stated that the SEC is attempting, in an unreasonable manner, to bring cryptocurrency trading platforms—including decentralized exchanges (DEXs)—within its regulatory scope by treating them as securities exchanges, accomplishing this through haphazard rulemaking. Furthermore, the SEC seeks to force DEXs into the same compliance choices it previously demanded of Coinbase when suing it for failing to register as a securities exchange.
Paradigm argues that the SEC's rulemaking proposal vastly exceeds its statutory authority and violates the Administrative Procedure Act. Although the acronym "DEX" contains the word "exchange," DEXs differ fundamentally from traditional exchanges in several key respects. DEXs lack intermediaries and centralized controlling entities, operate using automated market maker mechanisms, and rely on self-executing code that cannot be altered or upgraded. Therefore, the SEC's attempt to classify them as exchanges falls well beyond its法定 jurisdiction.
In addition, the SEC’s proposal makes arbitrary and capricious distinctions concerning emerging technologies, replacing established terms with novel, vague, and uncertain language. As a result, the SEC's new definition of "exchange" becomes overly broad, seemingly encompassing entities that are clearly not exchanges—such as Bloomberg's messaging service. The SEC attempts to resolve this issue by bluntly excluding such services from the definition, but this exclusion itself is arbitrary and capricious.
Finally, the SEC's proposal violates procedural requirements under the Administrative Procedure Act and suffers from fundamental procedural flaws. When the SEC clearly signaled its intent to regulate DEXs in April 2023, the notice made evident that the agency had already predetermined its stance. Nevertheless, this proposal should be promptly withdrawn, as it contains fatal defects both substantively and procedurally.
