Paradigm Files Amicus Brief Supporting Challenge Against the SEC’s Dealer Rule, Which Could Have Sweeping Implications for DeFi

May 24, 2024 | Gina Moon, Justin Slaughter

TLDR: Today, Paradigm filed an amicus brief supporting the Blockchain Association and Crypto Freedom Alliance of Texas motion for summary judgment in their challenge to the SEC’s new Dealer Rule, which could have sweeping implications for DeFi and all of crypto. The rule is unwise, unclear, and unworkable.


For years, the crypto industry has been pleading with the SEC to engage in transparent rulemaking, working with the industry on a rule set that will allow innovators to build in the United States without constant fear of a knock at the door. The SEC has steadfastly denied these pleas and instead has sought to bulldoze the industry through regulation by enforcement.

In its recent Dealer Rule, the SEC has widened the aperture for confusion even further. The final rule upends decades of understanding of who is a “dealer” under the Exchange Act by inserting the impossibly vague notion that anyone that has the “effect” of providing liquidity can be considered a dealer. Worse, it seeks to apply the new rule to the entirety of the digital asset industry without proper notice or any explanation of how the already vague rule could possibly apply or be complied with. This is Lewis Caroll logic, not that of a reasonable regulator.

The rule also commits critical process faults. In the 194 pages of the proposed rule, the SEC mentioned digital assets only once in a footnote to assert that the rule would apply to digital assets. There was no mention, let alone any discussion, of how the rule might apply to crypto, including decentralized protocols. And despite the crypto industry submitting many questions as part of the comment process, the SEC refused to even attempt to correct any ambiguity in the final rule and simply asserted its usual litany that every determination it makes will be based on “facts and circumstances.” This is not notice and comment rulemaking as required by the Administrative Procedure Act.

Paradigm’s amicus brief explains why the SEC’s hollow assurances are insufficient and worse yet, could actually be used by the SEC to impose impossible requirements on digital asset market participants - including DeFi users and software protocols.

The SEC’s continued refusal to provide clarity on digital assets has forced digital asset market participants to play an unwinnable guessing game. The Dealer Rule just compounds and exacerbates existing uncertainty, and Paradigm supports the Blockchain Association and the Crypto Freedom Alliance of Texas’ challenge to the new rule.