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Reading: Stealth rulemaking: New SEC Rule Indicating No Clue Towards Crypto Being a Threat to Decentralised Finance
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HOME > News > CRYPTOPEDIA > Stealth rulemaking: New SEC Rule Indicating No Clue Towards Crypto Being a Threat to Decentralised Finance
CRYPTOPEDIA

Stealth rulemaking: New SEC Rule Indicating No Clue Towards Crypto Being a Threat to Decentralised Finance

Editorial
Posted Editorial February 23, 2022 1.5k Views 8 Min Read
Updated 2022/06/27 at 10:06 PM
Stealth rulemaking: New SEC Rule
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The United States dropped a 600-page long document (Stealth rulemaking) proposing the reformation of exchanges. The amendments were proposed by the United States and Exchange Commission collaboratively. These proposed amendments are indicating reforming the Defi sphere.

Contents
What’s So Gravely Threatening?The Changed Dynamics Why Worry?What Makes it a Significant Move for the Crypto World?What can be the Alternatives?What Proposed Regulations Lack?Why the Crypto Entities Only?Conclusion

Proposed amendments to Rule 3b-16, lack the prominent role of digital assets or DeFi. It also neglects the threats that this sphere can expose in the future. The most affected body by these proposed amendments is the global Exchanges. Many are still pondering over the fact that the commission dragged several crypto entities under the banner of exchanges exposing them to real threats. 

What’s So Gravely Threatening?

What’s So Gravely Threatening?

There are several elements present in these amendments that have the potential to silently push the crypto world into a dangerous web. Here are some of the majorly affected areas by the amendments. 

The Changed Dynamics 

The amendments classified everything under one umbrella judging them under similar criteria. They expand the definition of exchange, excluding heavily the demands and relation that this body serves to the crypto community. The amendments target exchanges.

The substitute does not provide security and facility for executing transactions. Many platforms are being heavily turf for executing their operations and were not a part of this proposed jurisdiction before.

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The majority of the dragged platforms are often not registered as an alternative option for trading. These platforms are categorized within SEC’s limitations. One more absurd thing with this proposed rule is its addition of “communication protocol systems” within the boundaries and the setup of an “exchange.”

Why Worry?

The part where the crypto sector should worry is that decentralized finance protocols can easily fit in the category of communication protocol systems. This will bring traders and investors close without threats. 

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The institute focus on labeling several digital assets as “securities”.  The motive behind this is pretty simple, to bring and cover all types of asset categories under the definition of an exchange. This action will bring buyers and sellers to connect and support each other in a better way.

The reason why the commission is keen on putting things under one roof, “exchange”, is due to the rapid advancement in technology, crypto, and finance over the years.  This highlights the digitalization of the securities market. The proposed article claims that the amendments are designed to flex to meet the modern technology requirements. 

This step is also a positive approach towards the non-registered or non-regulated platforms to eliminate the privilege of unfairness and competitiveness with regulated ones. This will lower the burden and restriction on many regulated exchanges.

What Makes it a Significant Move for the Crypto World?

Crypto supporters and experts believe that the document covers all aspects of regulations for all crypto entities. There are some signs that these amendments will possibly target DeFi protocols for some time. 

These new rules will turn DeFi systems into new Exchanges for all. This can raise complications for DeFi itself. There is confusion about its potential to execute such tasks. Experts state this move as an attempt to target major unfair crypto actors. The document justifies the term “stealth rulemaking proposal”. 

The document refers to as a “Stealth Rule” due to the unavailability of terms like ‘crypto’ and ‘digital’ which do not appear in the SEC’s 654-page. The agency is targeting both decentralized and centralized systems having protocols serving as crypto trade platforms.

What can be the Alternatives?

A possible alternative to this rule is that a communication protocol system can partially register as a “slightly-less-regulated” trading platform or system. They can also choose to register as a broker or dealer to attract the right attention. 

These alternatives are however make the system less recognizable as an acclaimed exchange but it inflicts a lot of burden and pressure on the system as well. It includes a lot of hassle and labor.  

What Proposed Regulations Lack?

These regulations lack the coverage of entities that include security issuance partially. Software developers acting as elements that issue only securities or feature themselves as information conduits are being excluded from the reformed definition of an exchange.

Why the Crypto Entities Only?

There is still a lot left to discuss and these proposed amendments are released for public response. The response demand within a short span of 30 days, making many feel uncomfortable.

Many call it a hasty offer by the agency to the public to even make a sound judgment. There are almost 654 pages and the rule in itself is a lot complicated to grasp. And this response in just 30 days. Many people claim that this is an attempt by the commission to change the crypto world within no time for their interest. The added short responding time is acting as fuel to the fire. The agency has been following a 60-day responding time before this proposal.

The mode changed after the successor of Jay Clayton. And even if the public timely responds to the proposed document, this will not change the rule. We still have not been sure of what the regulator is planning to do with the digital asset world. OR, whether it is planning to restrict certain entities from growing. 

Such proposed amendments are a sign of limiting the capacity of the decentralized industry. And the proposed document leaps to receive a lot of backlash for its limitation of crypto entities by the crypto communities. Stakeholders will resist this and many crypto advocates will present it to others as a hidden agenda of governments to control and centralize digital assets.

Conclusion

The crypto world should be free from restrictions coming from centralized institutions. As often these regulations are to resist and limit crypto growth. Now the DeFi sector is the target for such centralized and controlled institutes. However, it can anticipate that these regulations will not harm the decentralized sphere. It will not also harm the charm and opportunity it holds for people globally. 

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