SEC's Proposed ‘Dealer' Definition: A Shadow Ban On DeFi?

On March 28, 2022, buried within a 200-page proposed rule ostensibly meant to redefine "dealer" and "government securities dealer" under Sections 3(a)(5) and 3(a)(44) of the Securities Exchange Act of 1934, the Securities and Exchange Commission ("SEC") published a seemingly innocuous footnote:

"Proposed Rule 3a5-4 would apply to securities as defined by Section 3(a)(10) of the Exchange Act, and proposed Rule 3a44-2 would apply to government    securities as defined by Section 3(a)(42) of the Exchange Act, including any digital asset that is a security or a government security within the meaning of the Exchange Act."

The security status of digital assets is currently evaluated on a case-by-case basis, typically by applying the Howey Test. This footnote clarifies the staff's position: They are keeping an eye on digital assets, and building a regulatory framework around the possibility that some, if not all, digital assets will fall within their purview.