Coinbase Criticizes SEC’s Proposed Rule
Coinbase has submitted its third comment letter, highlighting significant shortcomings in the US Securities and Exchange Commission’s (SEC) cost-benefit analysis of the proposed regulation. The letter contends that the SEC has not adequately evaluated the economic implications of the rule on efficiency, competition, and capital formation.
Despite acknowledging the absence of crucial information regarding decentralized exchange (DEX) operations and compliance expenses, Coinbase expressed concerns that the SEC has outlined ambiguous benefits that may not materialize, particularly if DEXs are forced out of the US market.
Concerns Over SEC Rulemaking
Paul Grewal, Coinbase’s chief legal officer and the author of the letter, emphasized that the SEC should withdraw the proposal and reconsider it after conducting comprehensive research. The letter further argued that the SEC has not met its statutory responsibilities by failing to gather essential information on DEXs, admitting its lack of understanding of key operational aspects, and making unfounded assumptions based on non-DEX entities.
Grewal criticized the regulatory body’s approach as arbitrary and irrational, pointing out that DEXs function in fundamentally different ways and would encounter prohibitive compliance costs.
Challenges in Assessing Costs and Benefits
The letter also highlighted that the SEC cannot accurately evaluate the costs and benefits of the proposed changes without clarifying when digital assets are classified as securities. The agency’s inconsistent methodology, which relies on case-by-case litigation instead of clear guidelines, has created uncertainty for industry participants and the courts.
Furthermore, the proposed modifications have intensified this uncertainty by ambiguously stating that digital assets may or may not be considered securities. Coinbase argues that this vagueness undermines the reliability of the cost-benefit analysis.
Impact on Smaller DEXs
Coinbase raised concerns about the negative effects of the rule on its services, such as the Base network and wallet offerings, suggesting that it could push DEXs out of the market. Smaller DEXs would be disproportionately impacted due to high compliance costs, which would create an unfair advantage for larger established firms. The ambiguous language of the proposal adds to the compliance burden.
The SEC has previously acknowledged the costs associated with such assessments but has overlooked them in this instance, raising further doubts about the validity of the rule’s cost analysis.
