‘We need lasting clarity’ – Crypto industry pushes SEC to formalize DeFi broker guidance

Over 35 crypto firms have pressed the U.S. Securities and Exchange Commission (SEC) to formalize the DeFi broker guidance it recently issued. 

In the 3-page letter, the group led by advocacy firm DeFi Education Fund said, 

The coalition hailed the agency’s guidance on the 13th of April, which stated that certain non-custodial DeFi user interfaces could operate without requiring the broker-dealer or exchange registration.  

However, such informal guidance can be challenged in court and doesn’t amount to the ‘durable clarity’ that the industry is seeking. Plus, a future SEC may change the definition of broker to include DeFi frontends. 

To play it safe, since a codified law for the same via a crypto market structure bill is still facing a delay, the industry opted for another route: a formal rulemaking by the SEC. 

If granted, most non-custodial DeFi platforms like Hyperliquid, Uniswap, and others could easily operate and onboard U.S. users without fearing potential probe. 

It’s worth pointing out that the guidance offered a five-year exemption for DeFi platforms as Congress comes up with a legislative framework for the sector. However, it may end up facing strong opposition from Wall Street players eyeing the tokenized asset sector. 

Will Wall Street block the DeFi frontend push?

Like stablecoin yield, DeFi regulation has drawn a sharp division between Wall Street and the crypto industry for a while now. So what’s at stake, and what are the sticking points?

For starters, the booming tokenized assets are expected to become a multi-trillion-dollar industry in two years. In other words, most stocks, ETFs, bonds, and other real assets will be tradeable via on-chain rails, including DeFi platforms. 

Given their ‘decentralized, non-custodial’ nature, the SEC wants some DeFi platforms to be covered under the proposed ‘innovation exemption.’

However, traditional brokers such as Citadel Securities and the umbrella body governing exchanges, SIFMA, have strongly opposed this exemption proposal. 

To them, any platform facilitating tokenized securities trades should be under regulation. In fact, they opposed the ‘non-custodial’ framing. SIFMA called for a ‘technology-neutral’ and level playing field approach to the booming sector. 

As such, the TradFi players will likely put more pressure against such a move during the rule-making process. 

Final Summary

• Over 30 crypto firms, builders, and advocacy groups have requested the SEC to formalize the recent guidance on DeFi frontends for ‘lasting clarity.’
• Given Wall Street players’ prior opposition to the DeFi exemption, they could attempt to rally against the rulemaking push.