Investment Firm Paradigm Slams SEC’s Muddled Approach To Re-define DEXs

Investment Firm Paradigm Slams SEC's Muddled Approach To Re-define DEXs
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Paradigm, a crypto-focused venture firm, has sent a 14-page letter to the United States Securities and Exchange Commission (SEC) secretary Vanessa Countryman, blasting the American watchdog’s attempt to redefine the term “exchange”, that seeks to fuse both decentralized exchanges (DEX) and decentralized finance (DeFi) into the definition.

On June 8, Paradigm criticized the US SEC’s attempt to alter the definition of exchange in context with the digital assets industry. The regulatory agency plans to revise the definition of the term “exchange” in the 1934 Securities Exchange Act to encompass decentralized entities. It seems the SEC wants to treat DEXs the same way as a security or stock exchange because the term “Decentralized Exchange” contains the word “exchange.” 

Paradigm Stands Up To The SEC

In the wake of this another attack on the crypto space, Paradigm sent the letter to the SEC arguing that fundamental differences between DEXs and exchanges make treating them as “exchanges” under the Act both “invalid and incoherent.” 

The crypto-focused investment firm explained a DEX, particularly those using automated market maker mechanisms, involves no person or entity playing an intermediating role between buyers and sellers—instead, it uses an algorithm to balance pools of crypto assets that potential buyers or sellers can freely access.

Furthermore, nor is a DEX run by any organization, association, or group capable of collective action, but rather relies on self-executing code that in many instances cannot be changed or upgraded. Therefore, combining DEXs into the archaic “exchanges,” definition as contemplated by the SEC is “beyond its statutory jurisdiction.” Paradigm wrote,

“We have a deep understanding of the emerging DeFi ecosystem, as well of the serious adverse effects that would come from the Commission’s proposal to regulate DEXs as though they were traditional securities exchanges.”

Past Trysts In ThE SEC Vs Crypto War

The San Fransisco-based venture capital firm also asserted the way in which the regulatory agency has proposed its new definition of “exchange” also violates the rulemaking procedures of the Administrative Procedure Act (APA). Paradigm also requested the Commission to withdraw its proposed redefinition of “exchange” and begin its consideration of how to adapt its regulations in the DeFi context.

This is not the first time the VC firm has criticized the American regulatory agency. Previously. Paradigm had alleged that the SEC is abusing its powers by attempting to expand its jurisdiction instead of setting parameters on the extent to which securities law applies to digital assets.

It noted the current SEC disclosure framework is “unfit” for the cryptocurrency markets. It had also berated the agency claiming that SEC Chair Gary Gensler’s “attempt to brute force crypto assets that may not even constitute ‘securities’ into an ill-fitting disclosure framework is bad policy.”


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