Oct. 23, 2023
Thank you for the opportunity to comment on the proposed amendments to the definition of “exchange” under the Securities Exchange Act of 1934. I understand the comment period was reopened in May and June 2023 to allow further public input on this important issue. I write today in the hope my perspectives will also be considered as part of the SEC’s decision-making process. I respectfully disagree with the proposed expanded definition of “exchange.” While I appreciate the SEC’s goals of providing regulatory clarity and protecting investors, the amendments as written could stifle beneficial innovation in decentralized finance and improperly classify some digital asset platforms as exchanges. Specifically, reclassifying alternative trading systems, broker-dealer platforms, and decentralized protocols risks hindering development of technologies expanding accessibility and efficiency for investors. Comprehensive exchange-level regulations could disproportionately impact smaller platforms lacking resources to meet new requirements. Additionally, the proposal risks regulating some platforms distinctly not acting as exchanges, like non-custodial wallets and liquidity networks simply facilitating peer-to-peer transactions. These decentralized technologies do not execute orders or match buyers with sellers, yet could still be deemed exchanges under the amended definition. A better way to look at decentralized exchanges (DEXs) is simply as an exchange of data. For example, Uniswap, which is software that literally anyone can run. I believe automatically assuming all digital assets traded on a DEX are securities is a considerable overreach by the SEC, when users are simply publishing data to a blockchain. This is conceptually the same as how the Internet works. E-commerce sites such as Etsy, Shopfiy, even Facebook Marketplace, exchange large amounts of data every second - but should they be considered a finance exchange subject to the same rules? No, they trade data that represents physical and digital goods, and should not be regulated as a finance exchange. Tokenized real-world assets or virtual assets on a blockchain being traded on a DEX are conceptually no different. Rather than a broad redefinition, I suggest a measured approach targeting specific activities raising policy concerns, like custody, manipulation, and investor abuse. Phased-in guidance could nourish continued responsible innovation benefiting the public. Thank you for reviewing these comments. I welcome any opportunity to discuss further how the exchange definition amendments can promote innovation while accomplishing the SEC’s regulatory objectives. Please feel free to contact me with any questions. Thank you!