SEC’s Proposal Threatens US Blockchain Industry, PolygonLabs Responds

• SEC rule change could spell doom for US permissionless blockchains: Rebecca Rettig.
• Inconsistency in SEC’s proposal unfairly targets blockchain over cloud tech.
• Transactions below $10M are experiencing consistent withdrawals.

Rebecca Rettig, Chief Policy Officer at PolygonLabs, has come out strongly against the U.S. Securities and Exchange Commission’s (SEC) proposed rule change redefining ‘exchange.’ In her response, Rettig declares this proposal could inadvertently outlaw permissionless blockchain networks in the US and deal a significant blow to decentralized finance (DeFi) protocols.

She argues that the proposed rule misunderstands these technologies’ decentralized nature. It suggests that validators, the independent entities responsible for verifying transactions on these networks, register as ‘exchanges.’ Rettig explains that this isn’t feasible; validators do not control DeFi protocols or coordinate actions in a way that an ‘exchange’ might be expected to.

Rettig also points out an implicit bias in the proposed rule. It holds blockchain technology to a different standard than cloud-based applications. While cloud-based services would require only the deployer to register, the new rule could compel every part of the blockchain ecosystem, including individual validators, to register.

PolygonLabs has voiced its deep concerns over the implications of such a rule, as it may lead to a de facto ban on the vibrant and innovative permissionless blockchain industry in the US. It would stifle innovation in blockchain and infringe on developing software protocols, like DeFi, that build upon these networks. With the future of blockchain in the US at stake, Rettig’s defense highlights the urgent need for clear, nuanced regulations that foster rather than hamper this transformative technology.

In related updates, data from the blockchain analytics platform Glassnode reveals a divergence in investor behavior that these regulatory developments may influence. It noted that transactions below $10 million are experiencing consistent withdrawals, with a net outflow exceeding $130 million daily over the past week. Conversely, transactions exceeding $10 million see consistent deposits, with daily inflow rates between $15 million and $30 million.