TL;DR
- a16z and the DeFi Education Fund proposed a safe harbor to the SEC so that DEXs and DEX Apps fall outside exchange registration requirements.
- The proposal establishes four objective criteria for DEXs: no custody of funds, automated execution, permissionless access, and credible neutrality.
- Additionally, a16z presented an adapted registration framework for crypto asset trading platforms that do operate as traditional intermediaries.
The venture capital firm a16z submitted to the U.S. Securities and Exchange Commission (SEC) a formal proposal to clarify when decentralized exchange protocols (DEXs) and the applications that provide access to them (DEX Apps) fall outside registration requirements under the Exchange Act.
The initiative was developed jointly with the DeFi Education Fund and is part of the SEC’s so-called Crypto Project, which seeks to migrate U.S. capital markets toward blockchain technology.
The document notes that the SEC has already taken important steps in that direction: in April it clarified when certain user interfaces may operate without registering as broker-dealers; in June it proposed repealing Rule 611 of Regulation NMS; and it recently published its “Innovation Exemption,” which excludes certain trading venues from the definition of an exchange. However, according to a16z, these measures do not extend to truly decentralized systems.
The a16z Proposal
The core of the proposal is a safe harbor that establishes a rebuttable presumption that DEXs and DEX Apps that facilitate peer-to-peer transactions —including tokenized securities— are not engaged in exchange activity. To qualify, a DEX must meet four criteria: not custody user funds, execute transactions in an automated manner without human intermediation, operate without access restrictions, and maintain credible neutrality without discretionary privileges.
DEX Apps, for their part, must ensure that pricing data comes from objective and verifiable sources, that no central operator exercises discretion over the coordination of trades, and that the developer’s role is limited to the technical maintenance of the system.
A Framework for Traditional Intermediaries
At the same time, a16z presented a complementary proposal for crypto asset trading platforms (CTPs) that do function as conventional intermediaries. The proposed scheme replicates the regime of alternative trading systems (ATSs) and would allow CTPs to register with the SEC and FINRA to offer trading in crypto securities, including mixed pairs of assets with and without security status.
The authors of the a16z document—David Sverdlov, Miles Jennings, Scott Walker, and Aiden Slavin— argue that Congress missed its opportunity and that it falls to regulators to move forward through guidance, exemptions, and traditional rulemaking to establish clear boundaries that support the responsible development of decentralized markets in the United States.
