Oct. 15, 2023
I am submitting this comment letter in response to the proposed amendments to the Exchange Act Rule 3b-16 regarding the definition of "exchange." I appreciate the SEC taking a proactive approach to provide guidance around emerging blockchain technologies. However, I have very serious concerns that the rule as currently proposed is fatally overbroad in scope and risks stifling American leadership in decentralized finance innovation. While I understand the desire to bring clarity to transactions facilitated via smart contracts on public blockchains, the notion that software developers or users interacting with open, decentralized protocols could be deemed exchanges is highly problematic. These individuals have no ownership, control, or custody over the networks or assets. By contributing open source code or merely using permissionless decentralized applications, they are not actively facilitating securities trades as a central intermediary. Treating such developers and users as exchanges would be tremendously burdensome and prevent everyday Americans from accessing new financial technologies. The scope fails to differentiate between centralized entities performing exchange-like functions versus fully open source, decentralized networks with no central party. Casting such a wide regulatory net would label millions of well-intentioned innovators and adopters as inadvertent securities lawbreakers for building or utilizing decentralized network infrastructure. This overbroad approach risks severely discouraging American developers from contributing to open source decentralized finance protocols if doing so means assuming regulatory requirements more fitting for centralized intermediaries. Stifling permissionless innovation by treating all smart contract systems as regulated exchanges hobbles U.S. technological leadership in this rapidly emerging field. Other jurisdictions take a more measured regulatory approach, threatening America's blockchain competitiveness. I strongly urge the SEC to significantly narrow the proposal’s scope to appropriately target only centralized actors and entities actively operating exchange-like platforms for securities trades. The rules must avoid inadvertently sucking in open source developers building decentralized public goods and ordinary users of permissionless protocols. The unique architecture of blockchain networks necessitates a careful, thoughtful approach to formulating exchange definitions and registration requirements.. Overbroad rules that discouraged decentralized finance innovation by treating open source contributors and end users as securities exchanges would be deeply misguided. I hope the SEC will sincerely consider these concerns and revise the rule scope to foster American leadership in decentralized technologies. Thank you for the opportunity to comment on this immensely important issue. Sincerely, Arden