Coinbase Criticizes SEC’s Proposed Rule on Digital Assets

Coinbase recently submitted a critical comment letter to the US Securities and Exchange Commission (SEC) regarding the proposed rule on digital assets. The letter pointed out significant flaws in the SEC’s cost-benefit analysis, particularly in the assessment of economic impact on efficiency, competition, and capital formation. Coinbase argued that the agency has overlooked key information on decentralized exchange (DEX) operations and compliance costs, while proposing vague benefits that may not materialize. According to Coinbase’s chief legal officer, Paul Grewal, the SEC should retract the proposal and conduct a more thorough research before moving forward.

In its letter, Coinbase also criticized the SEC for failing to fulfill its statutory obligations by not gathering essential information on DEXs. The regulatory entity was accused of admitting gaps in understanding key aspects of DEX operation and making unwarranted assumptions based on non-DEX entities. Coinbase’s executive highlighted the arbitrary and irrational approach of the SEC, especially in assessing compliance costs for DEXs. The lack of clarity in distinguishing when digital assets are classified as securities further complicates the situation, leading to uncertainty for industry participants and courts.

Coinbase expressed concerns over the proposed rule’s potential negative impact on its services, such as the Base network and wallet offerings. The company warned that pushing DEXs out of the market could disproportionately affect smaller exchanges with high compliance costs. This scenario would create an unfair advantage for larger incumbents in the industry. The vague language of the proposal adds to the compliance burden, as the SEC failed to address assessment costs previously recognized. This omission raises doubts about the validity of the SEC’s cost analysis for the proposed rule.

Overall, Coinbase’s comment letter sheds light on the weaknesses in the SEC’s cost-benefit analysis of the proposed rule on digital assets. The lack of thorough research, failure to gather essential information, and negative impact on industry participants raise concerns about the validity and effectiveness of the SEC’s regulatory approach. It remains to be seen how the agency will address these criticisms and whether any revisions will be made to the proposed rule based on feedback from industry stakeholders like Coinbase.