a16z seeks SEC exemption for DEXs – Could TradFi push back?

The crypto trade needs extra concessions from the SEC within the proposed “Innovation Exemption” framework. 

On the twenty second of September, Miles Jennings, Common Counsel at VC agency a16z Crypto, alongside foyer group DeFi Training Fund, wrote to the SEC and made two main requests. 

First, the corporations are requesting regulatory reduction for decentralized exchanges (DEXes), purposes that entry them, alongside the builders behind them. 

We advocate, as its subsequent steps in advancing Mission Crypto, that the SEC make clear the circumstances by which builders of decentralized alternate protocols (DEXs) and the apps that present entry to them (DEX Apps) fall exterior the Change Act’s alternate registration necessities.

This reads like developer protections, a key coverage push that was fiercely contested within the stalled CLARITY Act. In actual fact, a few of the developer protections within the revised draft had been watered down. 

In line with Jennings, such a transfer would “prolong regulatory readability to really permissionless methods.”

Price noting that the trade seeks this reduction to carry even when the platform handles tokenized securities; offered it’s absolutely non-custodial (doesn’t management person funds), it must be exempted from the Change Act. 

Secondly, the enterprise agency proposed a distinct approval pathway for crypto asset buying and selling platforms (CTPs) that operate as conventional intermediaries and management person funds. 

Why the trade wants DeFi readability

For perspective, the CFTC provided comparable reduction to “passive software program” like Phantom from being categorized as an introducing dealer beneath the Commodity Change Act. However the CFTC solely handles derivatives, together with perpetual futures. 

The reduction doesn’t defend a DEX that handles property that the SEC could classify as securities. In actual fact, a16z highlighted 2024’s SEC enforcement motion plan in opposition to Uniswap because the motivation for its push for DeFi readability.  

For the reason that SEC views tokenized shares as securities, it will likely be fascinating to see the way it reacts to the request and whether or not it would incorporate it into its Innovation Exemption framework. 

Nevertheless, conventional broker-dealers (together with Citadel Securities), represented by SIFMA, had already poked holes within the SEC’s Innovation Exemption proposal. The group could again the second a16z request, however not the exemption reduction for DEXes and apps. 

Ultimate Abstract

• DeFi Training Fund and a16z search authorized protections for DeFi protocols and builders
• SIFMA is cautious in regards to the SEC’s Innovation Exemption plan and will push again in opposition to a16z requests