Oct. 15, 2023
Dear SEC Commissioners, I am writing to provide comments on the proposed amendments to the definition of "exchange" under the Securities Exchange Act. While I understand the intention behind updating the definition to account for technological innovations, I have concerns about how decentralized exchanges (DEXs) would be classified under the new definition. Unlike traditional centralized exchanges, DEXs do not operate as a marketplace or intermediary for buyers and sellers. Rather, they are decentralized software protocols that anyone can access and use to trade digital assets peer-to-peer. There is no central entity or service provider in control of order matching or execution. Before assuming all assets traded on a DEX are securities, it is important to first analyze the underlying nature and functionalities of each individual digital asset. I propose that a better approach is to view DEXs as a data exchange mechanism. Users are merely publishing trading data to a public blockchain, which triggers automated and decentralized order matching and settlement. Attempting to classify all DEX activities as an "exchange" would be overboard and risks unintended consequences for open software development. It could disincentive permission-less innovation that expands access to new economic tools and financial opportunities. I urge the SEC to take a measured approach in applying existing securities regulations to decentralized finance. Assumptions that all DEX trading constitutes an exchange may not properly account for the nuances of how these technologies operate. I am happy to provide any additional perspectives on crafting a balanced regulatory framework for this emerging field. Thank you for your consideration and for the opportunity to provide input on this important issue. Sincerely, Daniel