- The Blockchain Association has filed a lawsuit against the SEC, challenging its redefined definition of “dealer” to include DeFi participants
- It argues the SEC’s move is an overreach, imposing traditional financial regulations on the dynamic digital assets market
- The Association accuses the SEC of hindering innovation in the digital asset space with its regulatory push
The Blockchain Association has escalated its confrontation with the U.S. Securities and Exchange Commission (SEC) by filing a lawsuit challenging the agency’s definition of “dealer.” The SEC recently redefined the terms to include participants in the DeFi sector, but the Blockchain Association argues that this represents an overreach and an attempt to impose traditional financial regulations onto the rapidly evolving digital assets market. The body accused the SEC of threatening to “bulldoze” the innovations arising from the digital asset space amid its push to regulate the sector.
SEC’s New Rules Under Fire
The Blockchain Association’s gripe is with a rule that the SEC adopted in February which redefines what it sees as a “dealer,” arguing that it “radically expands the Commission’s interpretation…in a way that could potentially encompass digital assets industry participants that do not engage in any conduct resembling “dealing”,” arguing that the agency has never understood the term.
The SEC’s rule change has drawn significant criticism from within the cryptocurrency community, mandating that DeFi protocols and transactions fall under the purview of securities regulations, requiring such projects to register as securities exchanges or brokers. This requirement poses significant challenges for DeFi projects, which operate autonomously and execute transactions without human intervention.
DeFi is a Different Beast, Argues Blockchain Association
The Association argues that there are crucial differences in the way that traditional finance houses operate compared to DeFi operations, arguing that “a dealer gone bad can cause significant harm” to their clients, something that doesn’t apply to DeFi:
…decentralized finance inherently avoids those risks by removing the intermediary and the ensuing information and financial disparities altogether. It relies on neutral, transparent software to facilitate trades, not dealers.
Critics of the SEC’s move argue that the lack of guidance on how DeFi projects can comply with traditional securities regulations is deeply problematic, while there are also concerns that certain DeFi traders could be classified as professional brokers under the new rules, further complicating the regulatory landscape for the burgeoning DeFi sector.
The lawsuit, filed in collaboration with the Crypto Freedom Alliance of Texas, seeks a declaratory judgment from a federal court, alleging that the SEC’s expansion of the definition of “dealer” violates the Administrative Procedures Act (APA). The Association also argues that the SEC failed to adequately consider feedback and complaints from cryptocurrency industry stakeholders during the rulemaking process.
