The United States Securities and Exchange Commission (SEC) has recently implemented new regulations that redefine the terms “dealer” and “government securities dealer.” These rules, which were initially proposed in 2022, require a larger number of participants in the crypto market to register, join a self-regulatory organization, and comply with federal securities laws.
However, these new SEC rules have received significant criticism from various groups, including the crypto community, the decentralized finance (DeFi) ecosystem, and pro-crypto politicians. Since the rules were first proposed two years ago, the crypto community has been vocal in their opposition, citing a lack of clarity regarding the definition of crypto securities.
Much of the criticism stems from the definition of a dealer, as it could potentially force liquidity providers to register as securities dealers. This means that any liquidity provider that controls over $50 million in capital would be required to register with the SEC.
SEC Commissioner Hester Pierce expressed her disapproval of the final rule in an official statement, stating that the definition of a dealer is inconsistent with the existing statutory framework. She further argued that it would distort market behavior, degrade market quality, and turn traders, many of whom are customers, into dealers.
Numerous DeFi proponents and crypto experts have also voiced their concerns about the new rules on social media. Gabriel Shapiro, the general counsel at Delphi Labs, paraphrased the interaction between Pierce and SEC staff regarding the dealer registration requirements to explain how these rules will impact liquidity providers.
Cointelegraph reached out to Shapiro to clarify whether all liquidity providers with assets under management (AUM) of $50 million would be considered securities dealers. Shapiro explained that not all liquidity providers would fall under this category, as it would depend on whether the tokens in the pool are considered securities or if the trades made through the pool are securities transactions.
Bill Hughes, the senior counsel and director of global regulatory matters at Consensys, emphasized the importance of having clear regulations on what crypto assets are considered securities under U.S. law. He also stated that the new rules on crypto will likely face legal challenges in federal court, as they have a significant impact on the securities markets.
It is worth noting that the SEC has encountered substantial resistance in the form of judicial challenges to their actions against crypto companies. Ripple, Grayscale, and Coinbase, among others, have all contested the SEC’s actions in court.
Crypto proponents have also criticized the SEC for their refusal to provide clarity on crypto regulations despite years of demand from the community and policymakers. Experts now believe that the recent rule-making targeting liquidity providers may also face a judicial review in the future.