Decentralization Is Not the Answer

As of November 28, crypto had a market cap of $141B with a 24-hour trading volume of $20B. Cut Bitcoin from the conversation, and you are left with a market cap of $65B and a trading volume of $13B, roughly half of the total market.

The SEC is mandated by legislation to protect retail investors so that markets are fair and investors are protected.

Decentralization is not the answer for everything, and I would argue it's not the answer for securities, either.

How can a decentralized exchange prevent pump and dumps, where groups of investors buy and sell together to manipulate prices, or wash trading, in which an individual or small group trades back and forth amongst themselves creating a false sense of liquidity in order to lure in unsuspecting investors?

Even if smart contracts could provide solutions for these issues, the regulations around the trading of securities mean that secondary markets for these tokens are far more complicated than what a decentralized exchange can handle.

Rule 144 - This rule states that a company executive or a shareholder with 20 percent ownership, or more, cannot trade more than 1% of all of the shares outstanding-or the average weekly trade volume for the previous four weeks-inside a three-month window.

A decentralized exchange cannot stop trades that violate the rule.

There is a caveat to both Regulation Crowdfunding and Regulation A. Both regulations require that the company uses a Registered Transfer Agent for secondary trading, and this agent must be registered with the SEC. This means that the tokens could not trade on a decentralized exchange at all, as every trade would have to go through an RTA. A blockchain could reflect the results of the trade, but the RTA-not a smart contract-must execute the trade.

Unlike most tokens, ERC-1450 tokens cannot be traded peer-to-peer directly.

If the very ideal behind decentralized systems is the concept of fair markets and equal access, then there should be some sort of regulator to ensure that fairness and equality exist in the market.