Today is the 1 week anniversary of @blockchainassn filing its first lawsuit against the SEC - challenging the dealer rule. It's unfortunate that it's come to this, but we're excited to defend our members and the industry alongside our co-plaintiff, the Crypto Freedom Alliance of Texas.

The collective voice of the crypto industry.

Today is the 1 week anniversary of @blockchainassn filing its first lawsuit against the SEC - challenging the dealer rule. It's unfortunate that it's come to this, but we're excited to defend our members and the industry alongside our co-plaintiff, the Crypto Freedom Alliance of Texas.
https://t.co/JnWZcKVXzO

Head of Legal @ Blockchain Association. Casts not legal advice. 

Author of @ The Undefined on Substack. 

Now, the redefined term doesn’t factor in a customer relationship and focuses entirely on whether a person’s activity has the post hoc effect of providing liquidity. The rule violates the APA by exceeding the SEC’s statutory authority and failing to contain proper analysis.

The rule has a majorly detrimental impact on the digital asset ecosystem, particularly DeFi – pulling in liquidity providers and DeFi software and its developers, although it is vague and unclear. Requiring intermediation of DeFi protocols defeats the purpose of DeFi.

The new rule introduces two tests to identify dealers, both focus on the effect of trading activity rather than focusing on a customer relationship. Again, this is a drastic departure from any previous SEC interpretation of the term “dealer.”

The SEC goes further – even if a participant’s trading activity doesn’t meet either test to be a dealer, they still cannot presume to be free from liability for failure to register as a one. So there’s this third, undefined, test too…

Commenters raised dozens of concerns that the SEC fails to address, in violation of the APA. For instance, the new rule would drain liquidity from markets and generally deter interaction with DeFi protocols. The SEC’s response to which can best be described as a shrug.

And, the SEC fails to clarify a key threshold issue despite commenters asking for clarification: how to determine which crypto asset transactions qualify as securities transactions. This makes it even harder for industry to determine whether compliance is necessary.

Despite briefly acknowledging the negative impact the rule will have on digital asset markets, the SEC made no attempt to address or mitigate it, violating its obligation under the APA to consider any new rule’s effect on efficiency, competition, and capital markets.

And, by its own admission, the SEC did not even attempt to evaluate the additional costs that would be imposed on digital asset markets by the rule. Instead, the Commission is content keeping the wool over its eyes.

See the full list of relief we are requesting:

We’re proud to work alongside CFAT in ensuring SEC overreach cannot stifle innovation, disrupt market stability, or damage US economic competitiveness.

Thank you to our excellent counsel at Sullivan & Cromwell who are advocating on our behalf.

Stay tuned for next steps...

We raise several APA claims centering on the SEC’s unlawful redefining of the term “dealer.” By statute, the courts, and the SEC’s own interpretation, being a “dealer” previously turned on the specific services offered to customers. The SEC has flipped this on its head.