As crypto exchanges seek regulation, SEC sees punitive steps

As tensions continue to rise between the Securities and Exchange Commission (SEC) and crypto exchanges in the US, Coinbase has emerged as a symbol of regulatory resistance to what it sees as an unfair and highly flawed approach to Web3 oversight.

After months of tough talk from SEC Chairman Gary Gensler (who has repeatedly said he views coin offerings on crypto exchanges as securities) and frosty interactions with Coinbase, the agency has reportedly opened investigations into each US-based crypto exchange this month, according to Forbes.

It’s a bold move that has rattled the Web3 world.

This move comes on the heels of a July complaint the SEC filed in federal court that listed nine tokens offered on Coinbase as securities. Rather unhelpfully, the complaint does not specify why these particular tokens (which include AMP, DDX, DFX, LCX, POWR, RGT, RLY and XYO) differ from others offered on the exchange.

With the exception of Coinbase (and perhaps Ripple, the company behind the XRP token), however, crypto exchanges and the projects behind many of the tokens under investigation remain relatively quiet on the SEC’s recent moves.

“1930s Laws Couldn’t Predict Crypto,” Coinbase tweeted the same day the SEC issued the complaint when it filed a petition with the regulatory agency to issue new and more modernized securities rules that work for everyone.

In another company blog post in July, Coinbase Chief Legal Officer Paul Grewal reiterated the platform’s position that “Coinbase does not list securities. End of story.” Grewal also said that Commodities Futures Trading Commission (CFTC) Commissioner Caroline D. Pham noted that these investigations are a “striking example of ‘regulation by enforcement’.”

It’s a position many seem to share, including SEC Commissioner Hester Peirce. However, it is worth noting that US Senators Cynthia Lummis and Kirsten Gillibrand have introduced a bill in Congress that would give the CTFC more authority to regulate crypto markets than the SEC if passed, so Pham’s position may not be surprising.

Regardless, it’s possible that exchanges and cryptocurrency projects are happy to let Coinbase stick its neck out as the poster child for SEC pushback while taking a more compliant approach to the agency’s investigations even for the time being.

Several popular exchanges, including Coinbase, Kraken and KuCoin, did not respond to a request for comment from nft now on the agency’s investigations and their views regarding them.

However, a spokesperson for Binance now gave nft its thoughts on the investigations, saying: “As a company, we are focused on providing a superior product for our users, including by working with governments and regulators around the world. We take our legal obligations very seriously serious. From time to time we receive inquiries from public bodies, and we always cooperate with them.”

It would be difficult to take a more inoffensive position, but that is probably the position the company feels it simply has to take. Rather than risk legal action at the hands of the SEC, as Coinbase did when it tried (and failed) to launch its high-yield lending last year, it may prove better in the long run to play it safe through compliance by offering fewer tokens on its platforms. -term strategy for these exchanges.

Crucially, whatever rivalry exists between them, these exchanges want the same thing: clearer and more appropriate regulations for organizations in the Web3 space. How that will ultimately happen is hard to say, and also how much damage Coinbase is willing to take before an answer emerges.