Stricter Rules for Treasury Market Participants
On the 6th of February, the U.S. Securities and Exchange Commission (SEC) implemented new regulations requiring substantial liquidity providers in Treasury Markets to register with the SEC and adhere to financial laws. This move, initially proposed in March 2022, aims to enhance the safety of Treasury markets but also extends to certain actors in the decentralized finance (DeFi) space.
DeFi Liquidity Providers Under SEC Scrutiny
DeFi investors who provide liquidity exceeding $50 million to automated market makers (AMMs) such as Uniswap might now find themselves within the SEC’s jurisdiction. The decision, which was passed by a 3-2 vote among SEC commissioners, has sparked concerns over regulatory overreach into the crypto market.
Opposition and Support within the SEC
Commissioners Hester Peirce and Mark Uyeda dissented from the majority opinion, citing potential regulatory confusion. Meanwhile, Commissioners Gary Gensler, Caroline Crenshaw, and Jaime Lizarraga were in favor of the new rules, which target proprietary trading funds and private funds profiting from Treasury market fluctuations.
Crypto Community Pushes Back
Key figures in the crypto world, such as the Blockchain Association and the DeFi Education Fund, have voiced their opposition to the SEC’s expanded definitions and ambiguous policies. The DeFi Education Fund’s CEO, Miller Whitehouse Levine, criticized the lack of clarity in defining a market dealer and the potential impact on DeFi protocols.
Concerns Over Enforcement and Compliance
SEC Commissioner Peirce raised questions about the feasibility of requiring an AMM to register with the SEC, and the breadth of the rule’s impact. SEC Director for the Trading and Markets Division, Haoxiang Zhu, clarified that the focus is on individuals using decentralized software, not the technology itself. Zhu also acknowledged the challenge in enforcement due to the opaque nature of DeFi activities and the current compliance complexities.
Conclusion
The SEC’s latest rulemaking has stirred debate and concern among DeFi participants. As the industry grapples with these new regulations, the path forward for decentralized finance remains uncertain, with calls for clearer guidelines and a balanced approach to regulation.
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