Coinbase chief legal officer Paul Grewal blasted the U.S. Securities and Exchange Commission (SEC) in a Twitter thread over its proposal to update its definition of an exchange, saying the SEC is “going beyond its authority.”

The proposal, published in January, would expand the definition of an exchange to include “systems that offer the use of non-firm trading interest and communications protocols to bring together buyers and sellers of securities.”

Non-firm trading interest means a buyer or seller has indicated an asset as well as a quantity or price, leaving the rest of the details of a potential trade to be determined later.

Grewal argued that the new definition was broad enough to apply to decentralized finance (DeFi) platforms but did not consider how the new rule would impact decentralized exchanges or other DeFi protocols.


DeFi refers to financial tools built on a blockchain for the purposes of lending, borrowing, or banking without needing to go through third parties. 

“Despite spanning over 600 pages, the Proposed Rule, including the economic analysis, contains no such discussion with regard to digital asset securities or DEXes,” Grewal wrote in a comment letter, which Coinbase shared with Decrypt.

SEC letter touches on DAOs

The letter also argues that the rule could include participants in a DAO, or decentralized autonomous organization. 

If that were the case, each person might need to submit SEC filings to register as an exchange.


A DAO is a type of flat business structure that spreads control among participants and uses smart contracts to allocate funds. 

“Among many other challenges to applying the Commission’s registration and compliance requirements to DAO token holders,” Grewal wrote in the letter, “such groups of persons may not have access to information, or the level of control over the DEX [decentralized exchange], necessary to enable the DEX to satisfy such requirements.”

As of this writing, the letter had not yet been published on the SEC’s website, which included 124 other letters and 170 form letters generated using a page set up by the DeFi Education Fund.

The letters also included comments from cryptocurrency research firm Delphi Digital, which wrote that the SEC rule change would “strangle this nascent industry in its crib.”

Earlier this week, Washington, D.C.-based Coin Center submitted its own comment letter, arguing that the SEC’s proposed rule would be “unconstitutional.”

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