- In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed to amend old legislation to include decentralized finance (DeFi) exchanges.
- Polygon submitted a response to the SEC’s proposed rulemaking, stating that the new proposal threatens the existence of permissionless blockchain networks in the U.S.
- The SEC’s proposal aims to treat DeFi platforms and decentralized exchanges (DEXs) as securities or stock exchanges, although they are governed by algorithms and smart contracts, not individuals.
The United States Securities and Exchange Commission (SEC) intends to amend an 89-year-old provision of the legislation to include decentralized finance’ exchanges’ (DEXs). Polygon is one of several DeFi platforms opposing this broad and harmful terminology that does not even apply to decentralized blockchains.
On June 13, Polygon Labs, which released protocol version 2 this week, submitted a response to the SEC’s proposed rulemaking redefining the term “exchange.”
DeFi Under Threat
Polygon Chief Policy Officer Rebecca Rettig says the new proposal threatens the existence of decentralized blockchains.
“The new proposed rule isn’t only harmful to DeFi – it threatens the very existence of permissionless blockchain networks in the U.S.”
However, Gary Gensler and his team appear to be actively attempting to eradicate DeFi in America.
The SEC proposed revising the 1934 Securities Exchange Act in March 2022. The regulator wants DeFi and DEXs to be included because the terms contain the word “exchange.”
According to its mandate, DeFi platforms and DEXs should be treated the same as securities or stock exchanges.
Polygon clarified in its 17-page response that network validators “cannot be considered a “group of persons” in the way the proposal suggests.”
The SEC believes “exchanges” are controlled by people, but many DEXs governed by algorithms and smart contracts do not.
Rettig went on to say: “Numerous disparate & independent validators cannot somehow coordinate to “come in and register” as an “exchange” – from a technological, legal or practical perspective.”
It went to great lengths to explain and “educate” the SEC on the operation of decentralized ledgers. This is not the same as stock exchanges.
Rettig went on to say that the SEC was attempting to outlaw DeFi and all permissionless networks in the U.S.:
“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 U.S., as well as much of the software protocols built on top of such networks, including DeFi protocols.”
Paradigm Joins in the Fight
On June 9, venture capital firm Paradigm filed a response to the SEC on the same issue.
Rodrigo Seira, Paradigm’s legal counsel at the time, stated: “Through this haphazard rulemaking, the SEC inappropriately attempts to bring crypto trading platforms, including DEXs, under its remit and regulate them as securities exchanges.”
Furthermore, prominent investors like Mark Cuban have joined the fight. According to the billionaire, it is in the best interests of SEC lawyers to prioritize legal action over compliance assistance.
Furthermore, policymakers Senator Warren Davidson and House Majority Whip Tom Emmer introduced a new bill on June 12. Its goal is to remove “tyrannical chairman” Gary Gensler and reform the SEC.
