Coinbase calls out SEC’s “Irrational” rulemaking, are DEXs under threat?

Coinbase submitted its third letter to the US Securities and Exchange Commission (SEC) discussing the proposed changes to the definitions. The US’s biggest exchange showed its concern over the regulator’s proposal to expand the definition of “exchange.”

Coinbase argues that the commission lacks sufficient data to perform an accurate cost-benefit analysis and instead relies on flawed reasoning. The crypto platform urges the SEC to withdraw the proposal and conduct thorough research before proceeding.

Coinbase slams SEC’s “exchange” definition

Paul Grewal, Coinbase’s chief legal officer, in an X post, announced that the exchange moved ahead to register its scrutiny over the SEC’s “exchange” definition. He stated that the commission lacks critical analysis and fails to assert that there is any problem in need of regulation.

He mentioned that the SEC has failed to gather some basic information and didn’t conduct any economic analysis linked to the proposal’s effects on decentralized exchanges (DEX). The watchdog is allegedly pushing its irrational assumptions.

In the letter submitted by Coinbase, Grewal criticized the SEC’s proposed rule changes by highlighting that a cost-benefit analysis is mandatory under the Administrative Procedure Act and the Exchange Act of 1934. 

Coinbase’s chief legal officer suggests that the SEC should decline to extend the proposed rule to DEXs as this could lead to drastic consequences for the millions of Americans who engage with digital assets. However, he also hinted at the harm it could bring to innovation in the growing DEX market.

Grewal called out the commission’s efforts in proving the problem’s existence in the market. The SEC began from an assumption that there is some problem with the industry in need of correction. The letter indicated that the watchdog does not offer a single real-world example of someone who a DEX harmed and how the Proposed Rule would rectify that specific harm. He pointed out that this is not how rulemaking should be done and the proposal needs to be withdrawn and corrected.

Further, the SEC starts from an assumption that there is some problem with the industry in need of correction, yet fails to prove that problem’s existence. That is not how rulemaking should be done. At a minimum, the proposal should be withdrawn and corrected. 4/5

— paulgrewal.eth (@iampaulgrewal) August 12, 2024

Coinbase criticizes regulators’ efforts

Coinbase is filing back to back recommendations to the US’s biggest financial regulators over the rule making policies around digital assets. Earlier, It opposed the CFTC’s proposed rules for prediction markets and argued that they exceed the agency’s statutory authority.

Grewal criticized the broad definition of “gaming” in the proposal. He suggested that it could unjustly ban certain event contracts and urged the CFTC to withdraw and align the proposal with the CEA. In one of its recent moves, the exchange also addressed the commission’s refusal to present the full record of its inconsistent views of digital assets and its own regulatory reach.