Sen. Warren demands clarity on SEC’s existing authority on crypto exchanges by July 28

Warren, a Democrat who chairs the Senate Banking Committee’s subcommittee on Economic Policy warned of the growing risks posed to consumers and financial markets by “highly opaque and volatile” cryptocurrency market at a recent Senate Finance committee.

  1. Do you believe that cryptocurrency exchanges are currently operating in a “fair, orderly, and efficient” manner? If not, what problems has the SEC identified that are associated with the use of these exchanges?
  2. How do the characteristics of assets traded on cryptocurrency exchanges differ from those of assets traded on traditional securities exchanges? Do these characteristics warrant additional investor and consumer protections for cryptocurrency exchanges relative to those provided for traditional exchanges?
  3. Describe the extent of the SEC’s existing authority to regulate existing cryptocurrency exchanges. To what extent does that authority differ from the agency’s authority over traditional securities exchanges?
  4. Foreign regulators have moved to restrict cryptocurrency exchanges in their jurisdictions in recent years while calling for international coordination to address regulatory gaps. One specific regulatory challenge may arise from the unique organizational structure of some global exchanges. For example, Binance, one of the largest cryptocurrency exchanges in the world by trading volume, “is everywhere and yet based nowhere. The cryptocurrency exchange has processed trillions of dollars in trades this year as it transfers digital and conventional money around the world through a constellation of affiliates. And yet it has no headquarters.” In your view, to what extent is international coordination needed to address gaps in the regulation of cryptocurrency exchanges and ensure the protection of investors and consumers in the United States?
  5. In a recent address, Commodity Futures Trading Commission (CFTC) Commissioner Dan M. Berkovitz stated: “In a pure ‘peer-to-peer’ DeFi system… There is no intermediary to monitor markets for fraud and manipulation, prevent money laundering, safeguard deposited funds, ensure counterparty performance, or make customers whole when processes fail. A system without intermediaries is a Hobbesian marketplace with each person looking out for themselves. Caveat emptor — ‘let the buyer beware.’” Berkovitz further argues that DeFi derivative instruments are likely illegal under the Commodity Exchange Act.

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James Chung

Founder and Contributor @DigitalBankr. I write exclusive research, analysis and market news on all things blockchain, including crypto-assets.