Jun. 13, 2023
Dear Commissioners: I am writing in response to the SEC's recent rule proposal, File Number S7-02-22, that treats decentralized exchanges as equivalent to centralized exchanges. While I understand the SEC's primary mandate is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, I believe there are key differences between these types of exchanges that warrant distinct regulatory approaches. Unlike centralized exchanges, decentralized exchanges (DEXs) operate on blockchain technology and do not have a central governing body. While centralized exchanges can easily comply with regulatory standards due to their organizational structure, DEXs are fundamentally different. They are composed of smart contracts on a blockchain network that facilitate peer-to-peer transactions. As such, there are inherent difficulties in enforcing the same level of compliance that a centralized body can achieve. Moreover, the nature of DEXs doesn’t allow for the same level of control over user transactions, making Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance problematic. These issues underscore the need for a different regulatory framework that acknowledges the unique characteristics of DEXs. Instead of imposing the same rules on DEXs and centralized exchanges, I propose a more appropriate approach would be to require these entities to clearly disclose the risks associated with their use on their platforms. This would adequately inform potential investors of the risks they are taking, contributing to investor safety without hindering the technological innovation and development of the decentralized finance (DeFi) space. It is crucial for regulatory bodies like the SEC to understand the technological intricacies of DEXs and DeFi in order to enact effective and appropriate regulations. I urge the SEC to consider these factors and revise the proposed rule accordingly. Thank you for considering my comments on this important issue. Sincerely, Carey Tordsen