token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta

Cryptocurrency

Expect the SEC to Target More Token Exchanges After EtherDelta

token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta

The Securities and Exchange Commission’s (SEC) settlement with the founder of EtherDelta is likely the first of many enforcement actions to come against crypto token exchanges.

Until recently, the SEC’s scrutiny of the cryptocurrency industry largely focused on projects and teams that raised money through initial coin offerings (ICOs) in possible violation of securities laws. But a person familiar with the SEC’s thinking told CoinDesk Thursday that crypto trading platforms have become a significant priority for the agency’s enforcement division.

As such, the news that the SEC had charged EtherDelta founder Zachary Coburn with operating an unregistered securities exchange can be seen as a shot across the bow of token-trading platforms.

“At this point, if you’re doing an exchange of crypto assets, dealing with U.S. persons, you probably need to get either a no-action letter or get clarity from counsel about whether you are implicating securities laws,” said Andrew Hinkes, an adjunct professor at the New York University School of Law.

And while the EtherDelta action was the SEC’s first against a crypto exchange, Hinkes told CoinDesk:

“I’m surprised it took this long.”

Further, the case shows that even if so-called decentralized exchanges (DEXs) cannot be easily shut down, that does mean no one will be held liable for their activities. Without admitting or denying the charges, Coburn agreed to pay a total of $388,000 in penalties, disgorgement and interest under the settlement.  

“This tells you that an exchange that used a distributed set of nodes instead of a centralized server isn’t going to be treated any differently,” Hinkes said. “Just because you make it and then it gets operated by a decentralized network of others doesn’t mean that any prospective responsibility or liability is gone. It’s just possibly relocated.”

And notably, the action was taken against Coburn even though he left EtherDelta in late 2017. The trades of ethereum-based tokens on the platform cited by SEC took place between July 12, 2016 and December 17, 2017, around the time of his departure.

“It doesn’t matter whether you sell the business or operated it a year ago or a few years ago,” said Preston Byrne, a partner at the law firm Byrne & Storm, P.C. “American securities laws are going to be enforced.”

On the other hand, it’s also telling that Coburn’s penalty was merely a low-six-figure fine. He wasn’t banned from participating in capital markets, in part because he cooperated with the SEC, which wants other individuals running or planning to run similar platforms to reach out to the agency first.

The entrepreneur, in this case, cooperated fully with the commission, which is often a good idea,” Byrne said. “It shows the SEC is willing to work with people who are willing to work with them.”

Decentralization is relative

Stepping back, since the token sale craze of 2017, numerous DEX platforms have emerged where ethereum-based assets are often swapped without oversight from any licensed entity. 

According to DappRadar, the leading DEX platform IDEX had roughly 1,401 users over the past 24 hours. With regards to EtherDelta specifically, there were roughly 1,079 trades on EtherDelta over the past 24 hours, about 11 percent less than in the previous 24-hour period. 

Although the SEC hasn’t clarified which tokens that traded on EtherDelta it considered securities, this action hinted at who regulators consider liable for purportedly decentralized technologies.

Speaking of the SEC order and how it relates to the most popular form of ICO token, the ERC-20, Hinkes said:

“It says that he [Coburn] founded a company, wrote and deployed the smart contract and exercised complete and sole control over the operations. Based on that, he should have known that his actions would contribute to the violation of the Exchange Act.”

In Hinkes’ mind, this opens up a variety of legal questions for developers contributing to ethereum and bitcoin. It’s entirely possible that merely writing and executing code could make technologists vulnerable to legal action in the future if they neglect to create limitations for how that software is used, he said.

“EtherDelta could have elected to filter out certain tokens,” Hinkes said. “By not doing so, they opened themselves up for everything, including securities that are issued under ERC-20.

Regardless of which specific tokens are eventually deemed by courts to be unregistered securities, Stephen Palley, a partner at the Washington, D.C.-based law firm Anderson Kill, told CoinDesk his reading of the order implies the majority of EtherDelta’s volume came from “the purchase and sale of unregistered securities.”

Fight or flight

From Byrne’s point of view, the SEC’s enforcement action could inspire more cryptocurrency companies to avoid having operations in the United States.

“There are hubs overseas, Singapore, England, where the laws are much friendlier toward ICOs and tokens,” Byrne said. “The principal task of cryptocurrency entrepreneurs will be ‘how do we maximize our opportunities in those jurisdictions while limiting our exposure to American regulators, and also compliance with American laws, as we conduct business overseas?'”

Meanwhile, the U.S.-based DEX startup AirSwap is strategizing for the opaque regulatory climate by partnering with licensed securities dealers and avoiding order books altogether.

“Unlike other platforms, AirSwap doesn’t engage in exchange activities–it has no order book, no order matching, and no transaction fees,” AirSwap co-founder Michael Oved told CoinDesk. “Our approach has been to be proactive in seeking advice and to be transparent with regulators.”

Several exchanges operating in the U.S., including AirSwap’s rival Everbloom, avoid charging traders fees in an effort to reduce legal risks. Hinkes said this recent order may undercut such approaches.

“It doesn’t appear that taking a fee is relevant to their analysis of whether EtherDelta was acting as an exchange that should have registered or proceeded under an exemption, or not,” Hinkes said.

This much is certain, the SEC is far from finished with its sweep of the industry, which Palley compared to a five-act play, saying:

“They’ve got dozens and dozens of investigations going on. I think we’ll see more press releases, more enforcement actions. This is certainly not the end of anything. This is maybe the end of Act 2 and the beginning of Act 3.”

SEC Chairman Jay Clayton image via YouTube

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Source link

Have any Question or Comment?

Leave a Reply

Categories

token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta
token exchanges, Expect the SEC to Target More Token Exchanges After EtherDelta

Arts & Entertainment


Architecture
Art
Body Art
Dance
Fashion
Film & Television
General
Humor
Magic Tricks
Music
Photography
Radio
Theater

Business / Investing


Careers, Industries & Professions
Commodities
Debt
Derivatives
Economics
Equities & Stocks
Foreign Exchange
General
International Business
Management & Leadership
Marketing & Sales
Outsourcing
Personal Finance
Real Estate
Small Biz / Entrepreneurship

Computers / Internet


Databases
Email Services
General
Graphics
Hardware
Networking
Operating Systems
Programming
Software
System Administration
System Analysis & Design
Web Hosting
Web Site Design

Cooking, Food & Wine


Baking
BBQ
Cooking
Drinks & Beverages
General
Recipes
Regional & Intl.
Special Diet
Special Occasions
Vegetables / Vegetarian
Wine Making

E-business & E-marketing


Affiliate Marketing
Article Marketing
Auctions
Banners
Blog Marketing
Classified Advertising
Consulting
Copywriting
Domains
E-commerce Operations
E-zine Strategies
Email Marketing
General
Market Research
Marketing
Niche Marketing
Paid Surveys
Pay Per Click Advertising
Promotion
SEM & SEO
Social Media Marketing
Submitters
Video Marketing

Employment & Jobs


Cover Letter & Resume Guides
General
Job Listings
Job Search Guides
Job Skills / Training

Fiction


General

Games


Console Guides & Repairs
General
Strategy Guides

Green Products


Alternative Energy
Conservation & Efficiency
General

Health & Fitness


Addiction
Beauty
Dental Health
Diets & Weight Loss
Exercise & Fitness
General
Meditation
Men's Health
Mental Health
Nutrition
Remedies
Sleep and Dreams
Spiritual Health
Strength Training
Women's Health
Yoga
Dietary Supplements

Education


Admissions
Educational Materials
Higher Education
K-12
Student Loans
Test Prep & Study Guides

Home & Garden


Animal Care & Pets
Crafts & Hobbies
Entertaining
Gardening & Horticulture
General
Homebuying
How-to & Home Improvements
Interior Design
Sewing
Weddings

Languages


Arabic
Chinese
English
French
German
Hebrew
Hindi
Italian
Japanese
Other
Russian
Sign Language
Spanish
Thai

Mobile


Apps
Developer Tools
General
Ringtones
Security
Video

Parenting & Families


Divorce
Education
Genealogy
General
Marriage
Parenting
Pregnancy & Childbirth
Special Needs

Politics / Current Events


General

Reference


Automotive
Catalogs & Directories
Consumer Guides
Education
Etiquette
Gay / Lesbian
General
Law & Legal Issues
The Sciences
Writing

Self-Help


Abuse
Dating Guides
Eating Disorders
General
Male Dating Guides
Marriage & Relationships
Motivational / Transformational
Personal Finance
Public Speaking
Self Defense
Self-Esteem
Stress Management
Success
Time Management
Survival

Software & Services


Anti Adware / Spyware
Background Investigations
Communications
Dating
Developer Tools
Digital Photos
Drivers
Education
Email
Foreign Exchange Investing
General
Graphic Design
Hosting
Internet Tools
MP3 & Audio
Networking
Operating Systems
Other Investment Software
Personal Finance
Productivity
Registry Cleaners
Reverse Phone Lookup
Screensavers & Wallpaper
Security
System Optimization
Utilities
Video
Web Design
3D Printing

Newsletter

Enter your email to receive news and updates from this blog
X
%d bloggers like this: