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Following the execution of the SEC against the founder of Ethereum exchange EtherDelta, cryptocurrency traders appear to abandon the so-called decentralized encryption platforms while they wait to see if other law enforcement actions are falling off the pike.
DEX volumes suffer a major cut due to EtherDelta charges
As previously noted by the crypto research group GUIDE MARKETSdaily trading volumes on decentralized trade in Ethereum have plummeted significantly since Thursday morning when the Securities and Exchange Commission (SEC) announced that it penalized the founder of EtherDelta for illegally facilitating securities trading.
According to the DappRadar blockchain analysis site, the two major Ethereum DEX, IDEX and ForkDelta, recorded a 58% drop in the 24 hour trading volume, while the LocalEthereum, the fourth largest, saw its volume cut 36 %.
The volume of trade on the largest DEOS based on EOS – Newdex – is down 40%, although some smaller dApp have been ranked as exchanges have seen an increase.
SEC analyzes "decentralized" cryptographic exchanges
CCN reported yesterday that the Securities and Exchange Commission had filed a complaint against the founder of EtherDelta and resident in the United States Zachary Coburn, claiming to have illegally operated an unrecognized stock exchange from 2016 to 2017. According to the SEC order, Coburn sold EtherDelta to foreign buyers in 2017, which is why the platform continues to negotiate, even after the allegations.
EtherDelta was, and under its current owners is still, one of the many cryptographic exchanges classified as "decentralized", which means that, to some extent or another, they are based on intelligent contracts to facilitate the operations of the platform instead of exclusively using server-owned companies. However, as the SEC order shows, there are degrees of decentralization, and under the supervision of Coburn, the exchange was based too much on the off-chain infrastructure in its control.
It is true that EtherDelta was not a custodial, which meant that users retained control over their private keys and funds when they used the Ethereum exchange. However, in many other respects, EtherDelta worked quite similarly to a conventional cryptographic exchange. For example, Coburn has maintained off-the-shelf orders, which have minimized gas commission and improved the user experience, but have also made it easier for the SEC to claim to have acted as an exchange rate operator without license. In addition, he took advantage of trading commissions and provided customer support on social media.
Time for DEXs to wear overalls and ties?
Friday's DEX trading data suggests that, at least in the short term, SEC's charges may have frightened traders. In fact, the consensus among legal cryptography experts seems to have been the first of many actions to combat DEX, which in many cases are much more centralized than the acronym suggests. As Stephen D. Palley, a lawyer specializing in legal issues related to the blockchain, he eloquently said it:
Here is the simple SEC sequence Etherdelta: if it looks like a duck and caga like a duck, it's a duck. If you are an exchange or a security and you call yourself a decentralized yada yada, good luck when the law comes.
– Palley (@stephendpalley) November 8, 2018
That said, it is not entirely clear why increased SEC control would immediately lead to a decline in trading volumes. Since virtually all DEXs allow users to exchange tokens while maintaining control of their private keys, traders do not have to worry about their funds being trapped on such platforms, even if the SEC or another executive agency does a removal complete with their DEX. of choice.
However, it seems increasingly likely that over time, DEXs with a significant off-chain infrastructure will begin to operate more similar to centralized platforms by requiring users to undergo KYC / AML verification, blocking users from banned jurisdictions. and examining which tokens are allowed for order books. This process, as reported by CCN, has already begun, with IDEX announcing last week that traders must be subject to identity verification and that users in some jurisdictions will be blocked from accessing the platform.
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