SEC’s attempt to regulate decentralized exchanges is deemed ‘incoherent by Paradigm’

Crypto venture firm Paradigm argues that DEXes do not constitute securities exchanges.


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Paradigm, a crypto venture capital company, has criticised the United States Securities and Exchange Commission for its attempt to redefine “exchange”. If accepted, this would bring decentralized exchanges within the Commission’s purview.

The firm sent an extensive 14-page Letter on June 8 to SEC Secretary, Vanessa Countryman. It was in response to the regulator’s proposal for a new definition of “exchange” under the Securities Exchange Act 1934.

The SEC intends to update the 89 year-old legislation in order to include decentralized exchanges ( DeXes ) and decentralized financing (DeFi) within the definition of the word “exchange.” The SEC is treating DEXs the same way as stock or securities exchanges because the term “exchange” appears in the name.

Paradigm, on the other hand, argues that there are fundamental differences between DEXs (Derivative Exchanges) and exchanges, making it “invalid” and “incoherent” to treat them as “exchanges,” under the Act.

The Commission is now attempting to force DEXs to make the same Hobson’s choice after having sued Coinbase for not doing the impossible – registering as a security exchange when they were unable to do so.

Rodrigo Seira is Paradigm’s Legal Counsel. He commented that the SEC was “inappropriately trying to bring crypto trading platforms including DEXs under its remit, and regulate them as security exchanges.”

The SEC has proposed amendments to the Act in March 2022 to include any systems that facilitate the exchange of digital assets or swaps.

Paradigm claims that DEXs do not serve as intermediaries and that they are not maintained by an “organization or group of people” who maintains them.

They used market-making algorithm to balance pools that buyers and sellers could freely access. DEXs are also run by self-executing code, smart contracts and not groups or associations, the report argued.

SEC crackdown on Binance, Coinbase and DeFi trading volume 444%

This week, the SEC filed two lawsuits against Binance (the world’s biggest crypto exchange) and Coinbase.

In addition, the SEC has deemed at least 67 digital assets securities over the years. Congress has not yet passed any legislation that would classify crypto markets as securities.

Cointelegraph reported that the number of enforcement actions by the federal regulator against crypto companies has increased 183% in six months since the collapse of FTX.

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