Monday, April 15, 2024

MetaMask Developer ConsenSys Challenges SEC’s Proposed ‘Exchange’ Definition, Citing Blockchain Misunderstandings

Blockchain tech company ConsenSys, represented by lawyer Bill Hughes, has formally objected to the Securities and Exchange Commission’s (SEC) Notice of Proposed Rulemaking (NPRM) concerning the redefinition of a securities “exchange”. Hughes voiced these objections in a series of tweets today.

ConsenSys contends that the amendments proposed by the SEC would be unlawful if finalized in their current form, as they are intended to apply to blockchain protocols. They allege that the reopening release fails to rectify key legal deficiencies in the proposed amendments, misinterprets the term “exchange” as per the ’34 Act, and inappropriately aims to redefine exchanges in order to strengthen the registration of broker-dealers.

Furthermore, Hughes stressed that the proposal contains major misconceptions about blockchain technology and the dynamics of the broader ecosystem. Given these substantial shortcomings, ConsenSys has urged the SEC to withdraw the proposed amendments in their entirety.

Citing their prior 2022 comment, ConsenSys asserts that the Commission cannot lawfully enact the amendments as they currently stand. They argue that any further SEC action should exclude blockchain-based systems from the rule.

According to Hughes, these systems don’t align with a proper understanding of “exchange” under the ’34 Act, and thus cannot be regulated under it. Moreover, they state that SEC regulation in the broader blockchain context is inappropriate due to unresolved questions about the extent of the SEC’s jurisdiction over blockchain-based systems, and the Commission’s limited understanding of blockchain technology and ecosystem dynamics.

The lawyer also drew attention to Congress’s ongoing efforts to establish a comprehensive regulatory framework in this area. This framework, he said, will include specific provisions pertaining to the proper role of securities laws and the SEC. He therefore cautioned against the Commission’s potential to disrupt this large and growing economic sector with hastily and poorly thought-out regulations based on an unproven assertion of jurisdiction.

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