February 23, 2024

The crypto community is still buzzing with the recent move from the US Securities and Exchanges Commission (SEC). The commission adopted a new rule for the crypto industry demanding sure compliance among crypto service providers.

Based on the nature of the rule, there are concerns about its potential impact on liquidity providers on projects such as the upcoming XRL AMM. The rules comprised 247 pages and came through a 3-2 vote pass from the SEC staff.

SEC Lays Out New Rules For Cryptocurrencies 

The SEC adopted the new rules for the crypto industry on February 6, with specifics on liquidity providers. As a result of the rule, it’s now compulsory for all liquidity providers to register with the agency.

Further, the rules stated that such registration covers all dealers of assets that meet the classification as securities.

However, there’s an exception for those with assets below the $50 million threshold. The new rules will also extend to decentralized finance (DeFi) based on the SEC regulatory scope.

Part of the rules stated:

If Individual’s trading activities in crypto assets securities, including products, structures, and activities engaged in the so-called DeFi market, meet the definition of ‘as part of a normal business’ as set forth in the final rules and no exceptions or exemptions apply, that individual will be required to register as a broker or government securities dealer.

The crypto community had stood against the rules, posting several criticisms when the SEC first proposed them in March 2022. Many argued that the laws can’t regulate DeFi products since they are virtual assets without a central controlling body.

Moreover, the rules require that a particular class of liquidity providers on AMM register with the commission. One of the SEC commissioners, Hester Peirce, voted against adopting the new rules.

He required clarification on the people who must register with the agency. 

Peirce wanted to know if it would be those who write AMM’s software codes or those who serve as liquidity providers by depositing their assets.

Potential Impact of New Rules On Upcoming XRPL AMM

XRP Ledger (XRPL) has been preparing for the launch of its Automated Market Maker (AMM). The AMM on the network is expected to favor XRP holders as they could earn passive income by serving as liquidity providers for several assets on the blockchain.

However, due to the demands of the new rule, the crypto community fears Ripple’s plan might be affected. For instance, in a recent post on X, prominent attorney Bill Morgan raised concerns over its effect. 

The lawyer questioned the SEC’s attention to liquidity provision and its impact on decentralization, which could twist the concept.

Further, Morgan indicated other negative effects of the rules that the XRP community could have overlooked. Initially, the community felt that the rule may not apply to XRP as it now has a non-security status following Judge Analisa Torres’s declaration last July.

This meant that XRP liquidity providers may be exempted from the new rules. But, as Morgan revealed, the regulations require that centralized and decentralized exchanges register with the SEC as an alternative trading system (ATS) or exchange.

So, XRPL DEX might be among the expected platforms to comply.


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