Apr. 17, 2023
April 17, 2023 Decentralized cryptocurrency 'exchanges,' such as Uniswap, are not really exchanges. Rather, they provide software, and interfaces which allow virtually anybody to efficiently operate their own OTC cryptocurrency exchange. This is a very important distinction, and it is practically if not technically accurate. Calling Uniswap an exchange, for example, is like calling Google a content provider. Google may technically be a content provider, but for the most part it simply facilitates access to other people's content. Generally, it is widely accepted that Google provides access to illegal content and it is generally agreed that Google should not be held responsible for doing so. Of course, upon notice, search engines such as Google do generally have a legal obligation to remove references to illegal content. It is perfectly reasonable to propose that those operating, or providing access to decentralized cryptocurrency exchanges should be held to similar requirements, where said requirements may be practically implemented. For example, requiring such exchanges to flag coins that have been reported to be scams, or which have been detected as scams, would be a very simple measure that would help protect relevant investors without imposing impractical requirements that would, ultimately, serve no practical purpose. I do think it is important to note that these exchanges utilize trustless software (smart contracts), they provide an alternative to centralized exchanges and facilitate free market regulation, they eliminate red tape and they encourage innovation. Their popularity makes it clear that they have strong support from the investors the SEC is supposed to serve. I do hope that the SEC will respect this, and will refrain from taking any measures, or simply keeping measures in place that would make it practically impossible for decentralized exchanges to operate both within the scope of the law, and within the expectations of the investing public. To be clear, I am an avid DEX trader and I would love to see liquidity providers held responsible for their actions where applicable. Scammers are rampant, in part because they typically face zero threat of consequence. Even if they were to be caught, questions governing jurisdiction, the definition of a security, and the contents of implied promises likely makes it cumbersome at best for the SEC, and/or various law enforcement agencies to prosecute crimes that essentially amount to simple fraud and theft. But that is matter for a separate discussion, and has nothing to do with laws governing security exchanges. With proper investigative measures, the vast majority of activity on decentralized exchanges can easily be traced back to specific accounts on centralized exchanges. The coins traded on decentralized exchanges are often associated with websites and social media accounts that can be traced to specific individuals. Tools to govern decentralized exchange activity already exist without any need for new regulation. Thank you for your consideration.