Polygon Labs, a blockchain infrastructure sounds an alarm over the Securities and Exchange Commission’s (SEC) proposed redefinition of ‘exchange.’ The tech titan expressed these concerns recently thereby requesting the SEC to reevaluate its proposed amendments to Rule 3b-16 under the Securities Exchange Act of 1934.
The SEC’s reopening release suggests that not only DeFi software protocols enabling specific transactions on a permissionless, distributed ledger would have to register as a national securities exchange (NSE) or an alternative trading system (ATS), but also, the underlying ledgers or networks. Further, individuals or entities running or maintaining such systems would also need to register.
Polygon Labs has pointed out that the new rule would be logistically unworkable, given the structure of blockchain technology. They highlight that the countless independent validators of blockchain transactions cannot practically coordinate to register as an exchange, and these validators, by design, don’t control DeFi protocols. In addition, Polygon Labs points out the sweeping nature of the proposal, encompassing relationships far removed from traditional securities exchanges. The potential for misinterpretation here is vast, potentially causing more harm than good.
However, polygon Labs maintains that executing the proposed rule would effectively ban all permissionless blockchain networks in the U.S., as well as many software protocols built atop such networks, including DeFi protocols. The company’s critique underscores the high stakes at hand, drawing attention to the potential impact of the SEC’s proposed rule on the future of blockchain technology within the country.
Meanwhile, the SEC has yet to reply tto Polygon Labs’ critique, but this latest exchange underscores the increasing tension between regulatory bodies and the blockchain industry, as each navigates the complexities of new technologies and their implications for financial systems.