[2018-11-08] SEC Charges EtherDelta Founder with Operating Unregistered Exchange

[Lmaooo]

The US Securities and Exchange Commission (SEC) has charged the founder of decentralized Ethereum exchange (DEX) EtherDelta with operating an unregistered exchange.

As a DEX, the crypto trading platform allowed users to trustlessly trade Ethereum-based tokens without registering accounts or entrusting their funds to an exchange-controlled wallet. Trading was managed by a smart contract, though the exchange relied on off-chain infrastructure maintained by its operator.

According to the SEC, the EtherDelta platform illegally allowed users to trade tokens that the SEC considers to be securities under federal law, making it an unregistered securities exchange.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division.

“We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology,” added Steven Peikin, co-director of the SEC’s Enforcement Division. “But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”

Zachary Coburn, EtherDelta’s founder, consented to the order and agreed to pay $300,000 in disgorgement, along with $13,000 in prejudgment interest and a $75,000 penalty, though he has not admitted or denied the SEC’s findings.

CCN | https://www.ccn.com/breaking-sec-charges-etherdelta-founder-with-operating-unregistered-exchange/

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[hatshepsut93]

Wow, this is pretty big. Many members of crypto community are waiting for decentralized exchanges to replace centralized exchanges, because the later have many flaws like security issues, potential for manipulation, privacy and so on. But this SEC decision shows that it won't be so easy and that want it or not, but crypto space attracts more and more attention from regulators.

[Kprawn]

People are still hopeful that the SEC will approve Bitcoin ETFs, but they clamp down on unregulated/decentralized exchanges.

I am very concerned with the direction that these Bitcoin ETFs are going, because normal oversight are being abandoned for

total control. We should allow regulations, but the large scale surveillance is a red flag.  

[hatshepsut93]

We should allow regulations, but the large scale surveillance is a red flag.  

They are going to happen regardless if we allow them or not. But what makes Bitcoin different from centralized payment systems is that users will always have a choice how to use their money - they can comply with regulations or decide to risk and use cryptocurrencies in illegal way. Bitcoin is not about anarchy, it's about giving people freedom to decide for themselves and without influencing other people.

[LeGaulois]

If even the DEX are getting targeted by the SEC we are entering in a very sad period for the crypto world. Or at least not anything thing will be able to grow if you don't have a license or something like this in the US. Not all are from there, but the americans citizen are going to suffer the most with this over regulated policy.

[gentlemand]

Someone prosecutable = not decentralised. Less centralised perhaps but still far from the ideal. This sucks for the operator but there shouldn't have been an operator in the first place. If anything I hope this drives the truly unreachable versions. 

[squatter]

Wow, this is pretty big. Many members of crypto community are waiting for decentralized exchanges to replace centralized exchanges, because the later have many flaws like security issues, potential for manipulation, privacy and so on. But this SEC decision shows that it won't be so easy and that want it or not, but crypto space attracts more and more attention from regulators.

It's sad, but I'm not surprised. After I saw news that IDEX was planning mandatory KYC, I figured that regulators must be closing in on the DEX platforms. This order against EtherDelta makes sense when you consider how the current generation of DEXs all work:

IDEX is not a “DEX” in its current state. At this point the best way to describe IDEX is as a “non-custodial” or “hybrid-decentralized” exchange.

But this semantics issue is by no means unique to IDEX. We believe that no DEX is decentralized. As long as a project has a website, off-chain orderbook, or known team, they are not “fully decentralized.”

The whole thing really puts a damper on the excitement around DEX platforms. Who's going to want to run the centralized aspects of these exchanges when it puts them in the crosshairs of the US government?

[gentlemand]

The whole thing really puts a damper on the excitement around DEX platforms. Who's going to want to run the centralized aspects of these exchanges when it puts them in the crosshairs of the US government?

They should've figured this out before it happened. It's painfully obvious that places of this nature would be high profile targets for enforcement if there's someone or something to lay enforcement on.

The only realistic future is KYC'd up the arse or truly decentralised. There won't be any middle ground.

[figmentofmyass]

They should've figured this out before it happened. It's painfully obvious that places of this nature would be high profile targets for enforcement if there's someone or something to lay enforcement on.

The only realistic future is KYC'd up the arse or truly decentralised. There won't be any middle ground.

that much seems clear now. from shapeshift to etherdelta, the hammer is coming down. i wonder how binance is gonna contend with this pressure. if etherdelta is having enforcement actions leveled on it, what does that say about them? they allow residents from the USA, they've listed all manner of unregistered securities, and they're not registered with the SEC.