Oct. 14, 2023
Thank you for granting me the opportunity to express my comments regarding the proposed amendments to the definition of “exchange” under the Securities Exchange Act of 1934. I have reservations about the expanded definition and guidance, as it encompasses activities and platforms that should not reasonably be classified as exchanges. In particular, the broad analysis suggesting that any individual operating within a common enterprise could be deemed as participating in the operation of an exchange is overly inclusive. If taken literally, this could imply that every user of a decentralized smart contract protocol is functioning as an exchange. However, it is important to note that regular users of blockchain protocols should not automatically be classified as exchange operators solely due to the peer-to-peer nature of their transactions. I propose that decentralized finance (DeFi) platforms, such as Uniswap, should not be classified as exchange platforms. Rather, they should be recognized as decentralized software that can be utilized by anyone. A more appropriate classification for decentralized exchanges (DEXs) would be as data exchangers. Instead of assuming that all digital assets traded on a DEX are securities, it is advisable to consider each individual as simply publishing data to a blockchain. This exchange of data in a decentralized manner is comparable to how the internet functions currently. Platforms like Facebook Marketplace or eBay, which facilitate the exchange of data representing physical and digital goods, are not subject to financial exchange regulations. Similarly, trading tokenized real-world assets or virtual assets on a blockchain through a DEX should not be conceptually different. I recommend that the definition be narrowly tailored to centralized entities and platforms that offer exchange-like services, as regulation is more feasible and appropriate in such cases. The analysis of activities, relationships, and capabilities should focus on the actual functions of these platforms, rather than solely considering their technical structure. It is crucial to clarify that ordinary users of decentralized protocols do not automatically qualify as exchanges. A more balanced and nuanced approach to amending the definition of an exchange would allow for appropriate regulatory oversight without stifling innovation. I trust that the Securities and Exchange Commission (SEC) will carefully consider these concerns and feedback in order to strike the right regulatory balance. I appreciate the opportunity to provide input on this significant matter. Kind regards Dr. Arthur Walsh BChD, PGDipDent