SEC Amendment Proposal Is Unconstitutional, Advocacy Group Says

A new SEC amendment might unfairly subject blockchain developers and publishers to exchange registration requirements, Coin Center said

article-image

Blockworks exclusive art by axel rangel

share

key takeaways

  • The rule seeks to change the definition of “exchange” to include entities that connect buyers and sellers
  • The rule violates the First Amendment, according to Supreme Court precedent, Coin Center said

A new rule proposed by the SEC to expand its definition of “exchange” will unfairly subject developers and publishers to registration requirements and violates the US Constitution, nonprofit research group Coin Center said Thursday. 

The SEC revealed a proposed rule in March that would classify as exchanges entities that bring “buyers and sellers” together and “make available” communications protocols. The regulatory body has previously defined exchanges as entities that bring together “orders” and “use methods” to operate trades. 

“This rulemaking aims in part to expand the definition of ‘exchange’ in order to encompass additional financial services organizations,” Coin Center’s comment letter read.

“The way it does so, however, would create an inappropriately broad standard for registration that would impose an unconstitutional prior restraint on the protected speech activities of countless software developers and technologists.”

By expanding the definition of “exchange,” more groups and individuals would be required to register as such, Coin Center pointed out. While the SEC makes no mention of cryptocurrencies or digital asset technology in the proposal, the industry would be impacted should the rule pass, Coin Center said. 

“This rule change would undoubtedly impact countless developers, publishers, and republishers who share protocols (rules in computer language) online that allow persons to trade ‘tokens’ or other valuable digital assets,” the comment letter said. 

In addition to the harsher registration requirements, Coin Center argues that the proposed rule violates the First Amendment by infringing on freedom of speech.

The advocacy group cites a 1985 court case, Lowe v. SEC, where the SEC attempted to ban people from publishing newsletters with stock tips. The court ruled the ban unconstitutional. 

“We urge the Commission to follow the counsel of former Commissioner Karmel as well as current Commissioner Peirce, and to narrow the scope of the definition and avoid chilling the speech rights of Americans,” the letter said.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates.png

Research

The convergence of DePIN and energy generation aims to address modern grid challenges by incentivizing distributed generation.

article-image

An improving outlook on tariffs is positive for cryptocurrencies, but a sustained rally is going to take movement on the regulatory front

article-image

Apollo’s Christine Moy explained how the “velocity” of innovation in crypto has led to the evolution of RWAs

article-image

Warren Buffett attributes his astounding investment returns to only about a dozen “truly good decisions” he’s made

article-image

This report has been corrected.

article-image

Stablecoin revenue a bright spot for the crypto exchange in Q1, as trading revenue dropped 19% quarter over quarter

article-image

Creators are being told to “shill” their tokens and cash in on their “cults”