Oct. 20, 2023
Dear SEC, I am writing to express my concerns on the scope of this ruling and what is considered a ‘custodian’ or ‘advisor with investor funds or securities’. More specifically, I am showing support for decentralized exchanges (DEXs) and their trustless nature. DEXs are built on the blockchain, which is a decentralized and distributed ledger technology. This means that there is no need to trust a single party or ‘advisor’ to handle transactions because those transactions would be transparent and immutable. A trustless DEX allows users to place orders without providing any personal information or relying on a centralized authority. Instead, transactions are executed automatically and directly between users based on pre-programmed rules. This means that there is no need for intermediaries, and all parties involved have complete control over their own funds. Trustless DEXs also typically use smart contracts to ensure the integrity of trades and prevent fraud. In contrast, centralized exchanges use an order book, market maker, or liquidity provider to facilitate trades. They must be trusted as an intermediary to oversee and transact the trade. They also take custody of your crypto assets by requiring an investor to send the central exchange their funds or directly deposit funds from their bank. A recent example of a centralized exchange that is under investigation for fraud is FTX. The trustless nature of DEXs makes them more secure than centralized exchanges. It is nearly impossible to fake a transaction on a decentralized exchange running on the blockchain. Furthermore, since DEXs do not deposit your assets, there is no custody. DEXs are a new innovation to prevent bad actors from harming investors and preventing exposing personal information to It is important to note that just because an entity calls themselves a ‘DEX’, does not mean they are truly decentralized. A proposal for a better way for the SEC to protect investors is to audit the actual code to verify that a DEX is truly ‘trustless’. Here are some examples on how to determine if a decentralized exchange (DEX) is truly trustless, you can start by look for the following characteristics: 1. No central authority or intermediary: The DEX should not rely on a centralized authority or intermediary to execute trades. Instead, it should use smart contracts and other decentralized technologies to facilitate transactions. 2. No personal information required: Users should be able to place orders without providing any personal information, such as their name, address, or email address. 3. Automated execution: Trades should be executed automatically based on pre-programmed rules, without the need for manual intervention. 4. Smart contracts used: The DEX should use smart contracts to ensure the integrity of trades and prevent fraud. 5. Decentralized infrastructure: The DEX should be built on a decentralized infrastructure that is resilient to attacks and censorship. Thank you for your attention.