The SEC has demonstrated that it will go after the decentralized exchange (DEX) and that code writers are responsible for whatever transgressions the platforms help to facilitate. This was evidenced recently with the fine of the EtherDelta exchange operator Zach Coburn. More and more DEX’s are following suit and complying with regulatory authorities.
Radar Relay to update compliance procedures
Just days after EtherDelta was fined for operating an unregistered securities platform, its rival, Radar Relay, has followed suit with an announcement about its regulatory procedures. The DEX will avoid listing securities and intends to comply with the US Office of Foreign Assets Control (OFAC), which is concerned with terrorists and other bad actors.
But the fear of regulatory interference stretches even further than the exchanges themselves. 0x, the open source protocol powering many of these DEX’s, has issued its own confusing statement distancing themselves from the exchanges using it. According to the statement, it is up to each exchange to comply with the relevant legislation, namely about securities law, and to register with the SEC as necessary. However, this is far easier said than done. US securities law concerning tokens is a mystery with a continued lack of clarity, forcing many DLT companies to migrate to foreign shores.
The future of the DEX
It is impossible to comply with regulatory procedures and simultaneously run a decentralized exchange. Centralized regulatory authorities want to track and monitor user details by threatening the exchanges, which opposes the point of a DEX in the first place. In other words, the issue seems to be that these exchanges are not truly decentralized. There should be no identity associated with any of these exchanges so that threats cannot be used to shut them down. This anonymity is the primary strength of bitcoin, the most famous and widely used cryptocurrency.
A DEX needs to be created that it fully autonomous and that is completely immune to censorship. These current exchanges might survive as they are, but have missed the mark when it comes to decentralization. As per the Radar Relay statement, it is a – “real team, of real people, here in the U.S. using blockchain technology as a way to create financial agency and accessibility, not as a way to avoid regulatory compliance.” In other words, it is bound by the existing infrastructure which DLT was designed to replace, being more of a semi-centralized exchange. The DEX is not dead; we just haven’t seen one yet.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.