Oct. 15, 2023
I am submitting this comment in response to the proposed amendments on the definition of "exchange" under the Exchange Act Rule 3b-16. I have grave concerns that the rule as written is far too expansive in scope. The notion that software developers creating open source decentralized protocols could fall under the definition of an exchange is highly problematic. These developers have no control over the public blockchains they contribute code to and cannot reasonably comply with exchange registration, reporting, and surveillance rules. Likewise, the idea that ordinary users of decentralized apps and smart contracts could count as exchanges is untenable. These individuals did not create nor operate the underlying protocol and have no centralized custody over assets or transactions. This proposal has the potential to turn millions of Americans experimenting with emerging technologies into inadvertent securities law violators. I urge the SEC to take a much more measured approach, only treating true centralized intermediaries facilitating securities trades as exchanges. Attempting to stretch decades-old regulations to encompass blockchain networks and Web3 innovations will inevitably fall short. The rules must be carefully tailored to avoid discouraging software developers from contributing to open source decentralized finance projects. Overregulation risks stifling American leadership in this critical emerging field. Thank you for considering this additional perspective on the need to right-size the scope of the proposed amendments. Sincerely, Sajith Indika