SEC Crypto Regulation Alert: Will One New Proposal Threaten Decentralized Finance?

Crypto investors are on high alert this week, thanks to the U.S. Securities and Exchange Commission. While much of the policy talk has been coming from the White House and Capitol Hill, new worries are sprouting from SEC Chairperson Gary Gensler. A seemingly innocuous proposal is sounding the alarms across the world of decentralized finance. In fact, one commissioner called the proposal an SEC crypto regulation trap, threatening the entire industry.

An emblem at the U.S. Securities and Exchange Commission in Washington, DC.
Source: Mark Van Scyoc /

Last week, the SEC published a 600-plus page proposal, tackling alternative trading services (ATSs). The proposal seeks to redefine what an “exchange” is. It also features amendments to include ATSs which would fall under the new definition of “exchange” under the Exchange Act.

The proposal, perhaps unsurprisingly, is long, wordy and dry. But, it is anything but boring for those who use DeFi services. At least, that is what crypto bull and SEC commissioner Hester Peirce is saying. Peirce has called the proposal a “Trojan Horse,” allowing the SEC to quietly increase its power in probing crypto projects.

SEC Crypto Regulation: Peirce Calls Proposal a ‘Trojan Horse’

Peirce’s claims that the new proposal is a form of SEC crypto regulation in disguise is quite interesting.

Indeed, the proposed amendments don’t include any mention of cryptocurrency, DeFi or blockchain. It truly is a Trojan Horse, if what Peirce says is true. So, what would this proposal really mean for the future of crypto?

Crypto policy reporter Gabriel Shapiro discusses the implications of the proposal in his CryptoLaw newsletter. Shapiro, a U.S. attorney himself, takes a deep dive into the lengthy proposal. In it, he calls the proposal a “radical paradigm shift” for the agency.

Most notably, Shapiro accuses the proposal of trying to capture crypto exchanges and DeFi platforms alike under the definition of an exchange in order to prohibit their operation. Shapiro lays out many questions regarding how this policy would be implemented. For instance, he alleges the proposal leaves questions over how deploying automated market maker (AMM) code would work, and whether these programmers would have to register with FINRA or track all trades on a platform — both near-impossible tasks.

The SEC will hear all dissenting opinions on the proposal over the next month; Peirce and Shapiro are among the many crypto bulls calling for investors to make their voices heard, and to ask for further clarification over what seems to be a very ambiguous proposal.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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