In an unprecedented move, the SEC has charged decentralized exchange EtherDelta’s founder Zachary Coburn with running an unregulated securities exchange. Despite EtherDelta being a strictly decentralized ERC20 exchange, the SEC seems to still enforce regulation over such platforms.
One of the first popular decentralized exchanges, EtherDelta was founded in 2017 and saw extreme popularity throughout 2017 and 2018, being built entirely on an Ethereum smart contract. This design allowed for the guaranteed security of user funds, while also allowing for users to trade any ERC20 token without an official listing. Despite the Ethereum blockchain’s limitations which slowed the exchange at times, it continued to see sustained popularity throughout 2017, with over 3.6 million orders being executed. The exchange appears to have been sold to anonymous Chinese buyers sometime in late 2017, who subsequently launched an EtherDelta token and ICO (which turned out to be an apparent cash grab with no real purpose). In response to the SEC’s actions, Coburn has agreed to pay over $400k in fines.
“We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology. But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.” -Steven Peikin, Co-Director of the SEC’s Enforcement Division
According to the SEC, charging EtherDelta is in line with the organization’s recent string of actions against fraudulent and unregistered ICOs and cryptocurrency exchanges. This appears to be the first time a prominent decentralized exchange has been targeted, showing the SEC’s willingness to go after such platforms. Their inability to affect the state of EtherDelta itself represents a continual strength in decentralized exchanges, however – the smart contract where users hold funds and execute trades is unable to be affected, and mirrors like ForkDelta allow for safer ways to access the exchange’s services.