Coinbase has raised concerns about the flaws in the US Securities and Exchange Commission’s cost-benefit analysis of the proposed rule. The crypto exchange pointed out that the SEC failed to properly assess the economic impact of the rule on efficiency, competition, and capital formation. By not considering critical information on decentralized exchange (DEX) operations and compliance costs, the SEC’s proposed benefits appear vague and uncertain.
Call for Withdrawal and Redo
Paul Grewal, Coinbase’s chief legal officer, emphasized the need for the SEC to withdraw the proposal and conduct thorough research before reintroducing it. The letter highlighted the SEC’s failure to fulfill its statutory obligations by not gathering essential information on DEXs. It pointed out gaps in the understanding of DEX operations and unjustified assumptions made by the SEC based on non-DEX entities.
Arbitrary Regulatory Approach
Coinbase criticized the SEC for its arbitrary and irrational approach towards regulating DEXs. The letter argued that DEXs operate differently and would face prohibitive compliance costs under the proposed rule. The lack of clarity on when digital assets are classified as securities adds to the uncertainty in the industry. The SEC’s inconsistent approach, relying on case-by-case litigation, contributes to the confusion faced by industry participants and courts.
The proposed rule has the potential to negatively impact Coinbase’s services, such as the Base network and wallet offerings, by potentially driving DEXs out of the market. Smaller DEXs would be disproportionately affected by the high compliance costs, giving larger incumbents an unfair advantage. The vague language used in the proposal adds to the compliance burden faced by industry participants.
Coinbase pointed out that the SEC ignored assessment costs previously recognized when assessing the proposed rule’s impact. This omission further calls into question the validity of the SEC’s cost-benefit analysis. The uncertainty surrounding the classification of digital assets as securities undermines the reliability of the proposed changes.
Coinbase’s critique of the SEC’s rule proposal highlights significant flaws in the cost-benefit analysis and regulatory approach. The call for withdrawal and a thorough redo, along with concerns about the negative impact on services and compliance costs, raise valid questions about the validity and impact of the proposed rule. The SEC should address these concerns and work towards creating a more clear and transparent regulatory framework for the crypto industry.
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