Polygon Labs Stand Against SECs Proposal to Broaden ‘Exchange’ Definition
Recently, the United States Securities and Exchange Commission (SEC) proposed a plan to amend its legislation of 89 years to modify the definition of ‘Exchange’ and include decentralized finance exchanges (DEXs). In response, several DeFi platforms, including Polygon Labs, have appeared to dispute this wider and seemingly harmful terminology, which doesn’t even pertain to decentralized blockchains.
How DeFi’s are under threat with the proposed amendment?
Polygon Labs submitted their objection against SEC’s proposed changes to the definition of “Exchange” on June 13. Rebecca Rettig, the chief policy officer at Polygon, exclaimed how this latest SEC proposal threatens the survival of decentralized blockchains. She stated in her statement, “The new proposed rule isn’t only harmful to DeFi – it threatens the very existence of permissionless blockchain networks in the U.S.”
It seems like Gary Gensler and their team’s point of view is to shut down DeFi in America through active steps. Since DeFi and DEXs contain exchanges in their name, SEC proposed to include these chains in the term’s definition and revise the Securities and Exchange Act developed in 1934.
According to its March 2022 proposal, it would like DeFi and DEX platforms to be treated precisely as securities or stock exchanges. This prompted Polygon Labs to issue a 17-page response, clarifying that “per the proposal suggestions, they cannot consider a group of people as network validators.”
They disputed that SECs view DeFi and DEXs to be controlled by people, making them a part of “exchanges.” However, many DEXs are administered by smart contracts and algorithms. The exact words by Rettig are, “Numerous disparate & independent validators cannot somehow coordinate to “come in and register” as an “exchange” – from a technological, legal or practical perspective.”
In-depth Explanation Of Decentralized Ledgers to SEC
Polygon Labs went to great lengths to explain and teach SEC how decentralized ledgers work and the vast difference between them and stock exchanges. Rettig continued exclaiming that SEC is effectively attempting to ban DeFi and all permissionless networks from the US, saying,
“Ultimately, as set forth more fully in our response, the proposed amended rule would be a de facto ban on all permissionless blockchain networks in the US, as well as much of the software protocols built on top of such networks, including DeFi protocols.”
Others Who Joined The Fight
Paradigm, a venture firm capital, also responded to SEC on June 9 for the same matter. Rodrigo Siera, Paradigm’s legal counsel commented on the topic saying, “Through this haphazard rulemaking, the SEC inappropriately attempts to bring crypto trading platforms, including DEXs, under its remit and regulate them as securities exchanges.”
Moreover, Mark Cuban, a popular global investor has also joined hands with these platforms to dispute SEC’s proposal. The billionaire said it was in the SEC lawyer’s interest to take legal action against prioritizing compliance assistance.
Further, policymakers Senator Warren Davidson and House Majority Whip Tom Emmer offered a new bill on June 12, intending to expel Gary Gensler and reform the SEC.
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