Apr. 15, 2022
Dear Ms. Countryman, I am writing to express my concern that an overly broad definition of “exchanges” in Proposed Amendments to Exchange Rule 3b-16 could inadvertently target developers of DeFi protocols and the users who benefit from those protocols. In particular, the broad and undefined use of the term “communication protocol,” could threaten block explorers, websites and developers of open-source DeFi technology. As a big advocate of the crypto space since 2013 and a user of automated market makers (AMMs) since 2019, I believe they explicitly fall outside the intended scope of the Securities Exchange Act of 1934 for several reasons: DeFi enables peer-to-peer transactions, which are not custodied by third parties or subject to censorship or manipulation by centralized actors. AMMs such as Uniswap do not use centralized order books. As open source software running on decentralized blockchains, AMMs operate autonomously. Willing participants can interact with the software and review its code at will with full knowledge that there is no “broker” or third party intermediating trades. I believe the current amendments should be modified for several reasons: If DeFi is targeted, it will erode the position of the United States as a technological leader in the crypto space. It will harm investors who want to and do use AMMs, which is the opposite of the SEC’s mandate. This proposal steps beyond the bounds of the SEC’s statutory authority and threatens First Amendment protections on the freedom of speech and creation of open-source software. I believe the proposal should use specific language rather than overly-broad language to define exchanges as they were originally intended to be defined in the Exchange Act. I often trade on decentralized services explicitly because I trust them more than centralized services. I am also philosophically opposed to using centralized services where my transactions can be censored and subjected to vampiric fees imposed by middlemen. Blockchain-based, peer-to-peer technology including AMMs is a radical new technology that has the power to transform the financial services industry. Any regulations that could impact the space should be done with proper notice and as part of a dedicated, multi-agency effort like the one President Biden has ordered. Thank you for your time and consideration. Sincerely, Fred Marion Dayton, Ohio