Oct. 14, 2023
Unlike traditional centralized exchanges, decentralized exchanges do not actively facilitate trading, pricing, or custody of assets and securities. Rather, DEXs utilize smart contracts to enable peer-to-peer exchange of cryptographic data that represents underlying value. Here are some key points that could be made to argue that decentralized exchanges (DEXs) should be classified as data exchangers rather than traditional securities exchanges: - DEXs do not take custody of any assets or securities. They facilitate peer-to-peer exchange of cryptographic data that represents value. - The cryptographic data exchanged on DEXs enables users to update ledger entries on a decentralized blockchain network. No assets actually change hands. - DEXs utilize automated smart contracts that algorithmically match and execute swaps of cryptographic data. The DEX itself does not actively trade or set prices. - Without order books, bid/ask spreads, or other price discovery mechanisms, DEXs cannot actively facilitate trading or pricing of assets in the way centralized exchanges do. - DEX users maintain full custody of their assets at all times during cryptographic data exchange. This differs from centralized exchanges that take custody of users' assets. - From a technical perspective, DEXs provide protocols and smart contract functionality to relay data. They do not provide traditional exchange trading, pricing, and custody functions. - The role of DEX developers is limited to creating data transfer and matching protocols. They do not oversee, facilitate, or intermediate the exchange of assets and securities. - DEXs do not have the same potential for manipulative, discriminatory, or fraudulent trading practices as centralized exchanges. The key argument is that DEXs serve as avenues for peer-to-peer data transfer rather than actively facilitating trading and pricing of assets in the way centralized exchanges and trading platforms do. This supports classifying them as data exchangers rather than securities exchanges from a regulatory perspective.