Regulators latest regulations could impact DeFi liquidity providers

The SEC has recently implemented stricter regulations for major investors in Treasury Markets, but some aspects of the new rules may have implications for users of decentralized finance.
On February 6th, the U.S. Securities and Exchange Commission (SEC) passed two rules requiring market participants involved in significant liquidity-providing activities to register with the regulatory body and become part of a self-regulatory organization. This move aims to ensure compliance with financial laws and regulatory obligations at the federal level.
Originally proposed in March 2022 with the goal of enhancing the safety of the Treasury market, the rules also address the issue of crypto asset securities. If enforced, investors in decentralized finance who provide more than $50 million in liquidity to platforms like Uniswap will fall within the jurisdiction of the SEC.
The decision on the rules was made by a 3-2 vote, with Commissioners Hester Peirce and Mark Uyeda opposing the proposal, while Commissioners Gary Gensler, Caroline Crenshaw, and Jaime Lizarraga supported it.
Groups like the Blockchain Association and the DeFi Education Fund raised objections to the regulations in response to the initial introduction of the rules. Miller Whitehouse Levine, CEO of the DeFi Education Fund, argued that the broadened definition of a market dealer was too vague and failed to address key concerns related to decentralized finance protocols.
Commissioner Peirce raised questions about how automated market makers (AMMs), which are essentially software, could register with the SEC and how many entities would be impacted by the new rules. Haoxiang Zhu, the SEC’s director for the trading and markets division, clarified that the focus of the proposal was on individuals utilizing decentralized software rather than the technology itself. Zhu also noted that a lack of comprehensive data and widespread non-compliance among DeFi participants made it challenging to identify those who would be affected.
For more information, you can read about Commissioner Peirce’s criticism of the SEC’s shifting stance on Bitcoin ETP approval and stay updated by following us on Google News.