Oct. 18, 2023
The proposed rule to expand the definition of "exchange" to include certain decentralized finance (DeFi) systems is not enforceable by the Securities and Exchange Commission (SEC) because decentralized exchanges (DEXs) do not exist in a particular geographic center or location. DEXs are operated on a decentralized network of nodes, which means that they are not controlled by any single entity. This makes it difficult for the SEC to enforce any rules against DEXs. The SEC has jurisdiction to regulate securities exchanges that operate in the United States. However, DEXs are not subject to the SEC's jurisdiction because they do not operate in any particular geographic location. DEXs can be accessed by users from all over the world, and they are not controlled by any single entity that is located in the United States. In order to enforce the proposed rule against a DEX, the SEC would need to identify the individuals or entities that are responsible for operating the DEX. However, this is very difficult to do because DEXs are decentralized. Additionally, the SEC would need to serve legal process on the individuals or entities that are responsible for operating the DEX. This is also very difficult to do because DEXs operate on a global scale. Even if the SEC was able to identify the individuals or entities that are responsible for operating a DEX and serve them with legal process, it is not clear that the SEC would be able to enforce its rules against them. This is because DEXs are often operated in countries that have different laws and regulations than the United States. For these reasons, the SEC's proposed rule to expand the definition of "exchange" to include certain DeFi systems is not enforceable. DEXs are decentralized and operate on a global scale, which makes it difficult for the SEC to identify the individuals or entities that are responsible for operating them and to serve them with legal process. Additionally, it is not clear that the SEC would be able to enforce its rules against DEXs even if it was able to identify the individuals or entities that are responsible for operating them.