The crypto community is still confused about the recent move by the US Securities and Exchange Commission (SEC). The Commission adopted a new regulation for the cryptocurrency industry that requires fiduciary compliance from crypto service providers.
Due to the nature of the rule, there are concerns about its potential impact on liquidity providers for projects such as the upcoming XRL AMM. The rules were 247 pages long and were approved by the SEC staff by a 3-2 vote.
SEC sets new rules for cryptocurrencies
On February 6 , the SEC approved new rules for liquidity provider specifications for the cryptocurrency industry . Due to the regulation, all liquidity providers must now register with the agency.
In addition, the regulations provide that such registration includes all commercial dealers who meet the security classification.
However, there are exceptions for people with assets below the $50 million threshold . The new rules also apply to decentralized finance (DeFi), based on the SEC’s regulatory framework.
Some rules are mentioned.
Whether a person's trading activities in cryptocurrency securities, including products, facilities and activities in the so-called DeFi market, meet the definition of "as part of the ordinary course of business" as defined in the final rule and no exception or exemption applies. If this does not apply, that person must be considered as Brokers or dealers trade in government securities.
The crypto community rejected the rules and voiced various criticisms when the SEC first proposed them in March 2022. Many have argued that the laws cannot regulate DeFi products as they are virtual assets with no central regulator.
Additionally , the rules require AMMs to register with certain categories of commission-based liquidity providers. One of the SEC commissioners, Hester Pierce, voted against adopting the new rules.
He asked for clarification on which people should be registered with the agency.
Pierce wanted to know who wrote the code for the AMM software or who acted as a liquidity provider by pooling their resources.
Possible impact of the new rules on the next XRPL AMM
XRP Ledger (XRPL) has prepared to launch its Automated Market Maker (AMM). The network’s AMM is expected to benefit XRP holders as they can earn passive income by acting as liquidity providers for various blockchain assets.
However, due to new regulatory requirements, the crypto community fears that Ripple's plans could be affected. For example, prominent lawyer Bill Morgan expressed concern about the impact in a recent post on X.
Lawyers have questioned the SEC's focus on providing liquidity and decentralizing its influence, which could undermine the concept.
Additionally, Morgan pointed out other negative impacts of the rule that the XRP community may have overlooked. Initially, the community believed that this rule may not apply to XRP as it now has a non-secure status following Judge Analisa Torres' announcement last July.
This means that XRP liquidity providers can be exempt from the new rules. But as Morgan revealed, the regulations require centralized and decentralized exchanges to register with the SEC as an alternative trading system (ATS) or exchange .
Therefore, XRPL could be one of the platforms expected to be equivalent to DEX.