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SEC Expands Regulatory Reach to DeFi, New Rules Target Liquidity Providers

The United States Securities and Exchange Commission (SEC) has expanded its regulatory scope to include decentralized finance (DeFi) liquidity providers. In fact, it has passed two new rules with a majority vote, broadening the definition of financial securities dealers to cover large DeFi liquidity providers.

Under the new rules, entities commanding at least $50 million worth of assets deemed as securities will now fall under the classification of “dealers.” This expansion includes entities operating on decentralized crypto exchanges, marking a major moment in the regulation of the DeFi space.

SEC Chair Gary Gensler emphasized the importance of these measures in protecting investors and ensuring market integrity. He stated, “If anyone trades in a manner consistent with de facto market making, they must register with us as a dealer,” highlighting the SEC’s commitment to consistent regulation across all market participants.

The newly adopted rules define a digital asset dealer as a person engaged in a regular pattern of buying and selling crypto asset securities, thereby providing liquidity to other market participants. However, liquidity providers commanding less than $50 million in assets are exempt from this regulation.

These rules are set to take effect 60 days after being published in the Federal Register, with a compliance deadline likely in April 2025.

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