The SEC (Securities and Exchange Commission), is tasked with governing United States financial markets. Their goal is to ensure fair markets and the protection of investors. They achieve these goals through regulations which enforce security measures such as KYC, and AML. In doing so, companies issuing securities are responsible for financial transparency on investments received.
Many in the cryptocurrency world that sought to circumvent SEC regulations thought that DEX (Decentralized Exchanges), were the perfect way to do so. These exchanges facilitate the trading of digital assets without the need for an intermediary. By eliminating this third party to facilitate trading, investors gain the ability to simply ignore security measures enforced on traditional exchanges.
Etherdelta Charges Laid
Today marks the first time the SEC has taken action against a DEX. Recent news indicates that the SEC has charged the founder of the DEX known as EtherDelta. This particular DEX is one of the largest in the world.
In their press release, Enforcement Division Co-Director of the SEC, Stephanie Avakian, justifies their actions by stating, “EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption.”
Also commenting was Enforcement Division Co-Director, Steven Peikin. He stated, “We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology…But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”
For his actions in founding/operating EtherDelta, Zachary Coburn settled charges with the SEC.
– $300,000 for disgorgement
– $13,000 for prejudgment interest
– $75,000 penalty
He was levied with these charges under the pretense that he was operating an ‘unregistered national securities exchange’.
An End in Sight?
Despite being one of the most commonly used DEX platforms, the volume seen on EtherDelta is miniscule compared to centralized crypto exchanges. Time will tell whether this news impacts recent gains seen within the cryptocurrency market.
This is not the beginning of the end for DEX. Although the founder has been charged, decentralized exchanges serve more purpose than to simply allow the circumvention of security measures. In some cases, they actually provide much higher levels of security when completing trades. Any time a trade takes place, and is facilitated by a centralized exchange, you are reliant upon their services. This means that you must store your funds within their wallets, and simply hope that they are not the victim of a hack. With a DEX, you are able to transfer from wallet to wallet, eliminating the needed trust of a third party.
While the future may be bright for eventual secondary market trading of security tokens, it is clear that the SEC does not approve of DEXs. Hopefully, services such as Bakkt, Securitize, and others have better luck in avoiding the wrath of the SEC.