They have written a detailed letter expressing their concerns to the SEC Secretary. The SEC wants to treat DEXes like traditional exchanges, but Paradigm believes this is flawed and does not consider the unique features of DEXes.
Paradigm argues that DEXes are different from traditional exchanges in significant ways. They say that treating them the same under the law is incorrect and confusing. They point out that the SEC previously sued Coinbase for trying to register as a securities exchange, even though it was not qualified. Paradigm accuses the SEC of trying to impose similar requirements on DEXes.
Rodrigo Seira, Paradigm's legal counsel, criticizes the SEC's attempt to regulate DEXes as securities exchanges. He believes that the SEC's decision-making process is poorly thought out and does not address the nature of crypto trading platforms, including DEXes, properly.
In March 2022, the SEC proposed changes to existing laws to include platforms that facilitate the exchange or swapping of digital assets. Paradigm argues that DEXes should not be treated as intermediaries like traditional exchanges because they operate differently. DEXes use algorithms to directly match buyers and sellers, and their transactions are automatically executed through smart contracts.
The SEC's recent lawsuits against Binance and Coinbase, two major crypto exchanges, indicate the regulator's firm stance on regulating the crypto industry. It is important to note that there is no specific legislation from Congress regarding cryptocurrencies, even though the SEC has classified some digital assets as securities.
Enforcement actions by the SEC against crypto companies have increased by 183% in the six months following the collapse of FTX. This shows that the regulatory scrutiny in the industry has intensified.
The disagreement between Paradigm and the SEC highlights the ongoing debate about how DEXes should be classified and regulated. The outcome of this debate could have significant implications for the future of decentralized exchanges and the wider crypto industry. As the SEC continues to assert its authority and the crypto industry faces increased regulatory scrutiny, people involved in the industry are closely monitoring further developments.
Also read- Bitcoin Magazine Founder's Advice: Withdraw Funds from Exchanges for Protection
