Oct. 28, 2023
The SEC's proposed amendments to Exchange Act Rule 3b-16 could be argued to legally not apply to decentralized exchanges (DEXs) with no central authority or physical location based on jurisdiction and lack of SEC authority over decentralized globally distributed nodes. Jurisdiction: The SEC's jurisdiction is limited to the United States. DEXs are decentralized networks of computers that are not located in any one jurisdiction. This makes it difficult for the SEC to assert jurisdiction over DEXs. In order to assert jurisdiction over a DEX, the SEC would need to show that the DEX has a sufficient connection to the United States. This could be difficult to do, as DEXs are designed to be borderless and accessible to users from all over the world. Even if the SEC could assert jurisdiction over a DEX, it would still need to show that it has the authority to regulate the DEX. SEC Authority: The SEC's authority is limited to regulating securities and securities exchanges. DEXs do not trade securities in the traditional sense. Instead, DEXs trade digital assets, which may or may not be securities. The SEC has not yet determined whether digital assets are securities. If the SEC determines that digital assets are not securities, then the SEC would not have the authority to regulate DEXs. Even if the SEC determines that digital assets are securities, it is not clear that the SEC has the authority to regulate DEXs. DEXs are decentralized networks that are not controlled by any one entity. This makes it difficult for the SEC to enforce its regulations on DEXs.