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Coin Center challenges the SEC’s ‘unconstitutional’ redefining of the term ‘exchange’

The non-profit organisation based in Washington, DC, believes the SEC is grossly overreaching with its new proposed definition of exchange, which would encompass all modes of communication, not just trade.

Coin Center, a non-profit blockchain advocacy organisation, has labelled the Securities and Exchange Commission’s (SEC) proposed redefining “exchange” as a “unconstitutional overreach.”

The lobbying group made the comments in a written response to the SEC’s March 18 Amendments to the Definition of “Exchange,” which detail changing the definition of “exchange” from a “system that brings together the orders” of a security to one that “brings buyers and sellers together.”

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Bringing orders, which are things, together is quite different from bringing people together, and Coin Center asserts that the latter is tantamount to coercion.

The rule change implies that Communication Protocol Systems are also exchanges, attracting programmers who merely share code for crypto transactions. If the proposal is adopted as a rule by the SEC, decentralised exchanges (DEX) such as UniSwap (UNI) and PancakeSwap (CAKE) will be notified that the commission requires them to register as exchanges.

According to Coin Center, this shift to a “speech-based definition” would affect “thousands of developers, publishers, and republishers” who trade code but not tokens. This is especially true for developers of DEX.

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The nonprofit responded to the proposed change on April 14 with lengthy comments in which it declared it unconstitutional and cited Supreme Court (SC) precedent that it believes could compel the SEC to withdraw its proposal:

“The manner in which it [expands the definition of ‘exchange’] would create an excessively broad standard for registration, imposing an unconstitutional prior restraint on the protected speech activities of tens of thousands of software developers and technologists.”

According to the SEC, incorporating considerations of Communication Protocol Systems into the definition of “exchange” recognises the value that individual buyers and sellers derive from communicating within a marketplace. According to the report, including these users in the definition can help “reduce regulatory disparities between similar markets.”

Coin Center, on the other hand, argues that the new definition is an attempt to curtail free speech in violation of the First Amendment. In the seminal 1985 case Lowe v SEC, the SEC was accused of doing just that. The SEC attempted to compel Lowe to cease acting as an Investment Advisor in that case by publishing a financial newsletter. Lowe won the case after the SC ruled that his newsletter was protected free speech.

Concerning Lowe v. SEC, Coin Center stated that the commission “threaten[ed] Americans’ free speech rights through an overbroad interpretation of its statutory authority.”


The SEC will accept comments on the rule proposal from US citizens until April 18.

Last November, the Infrastructure Bill was passed, requiring software developers, transaction validators, and node operators to file taxes as crypto brokers, a definition that many in the crypto industry believe is overly broad.


Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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