EtherDelta Founder Charged by SEC for Operating Unregistered Exchange

The US Securities and Exchange Commission's (SEC) move against the decentralized crypto exchange EtherDelta is a significant action by the SEC since it is its first enforcement action ever against an exchange deemed to be operating illegally.

The Securities and Exchange Commission announced in a press release that it has settled charges against EtherDelta founder Zachary Coburn. The SEC added that the decentralized exchange was operating as an unregistered exchange due to Mr. Coburn's actions.

Through a combined use of an order book and smart contracts, EtherDelta connects buyers and sellers through its decentralized marketplace platform. 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.

The order claims EtherDelta facilitated more than 3.6 million orders for ERC20 tokens (a popular Ethereum-based token protocol), many of which purportedly fall under local federal securities laws.

The agency stated in its press release that nearly all of EtherDelta's orders were placed after the SEC issued its 2017 DAO Report.

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The Security and Exchange Commission (SEC) of the U.S. charged the decentralized exchange (DEX), EtherDelta, for operating an exchange without registering it. The SEC noted in the report that certain digital assets, including DAO tokens, are considered as securities.

According to the agency, the majority of the trading activity in question has been made on the EtherDelta exchange after the SEC in the "2017 DAO Report" made it clear that some digital assets could be considered "securities", and that anyone who offers trading in these assets therefore are subject to SEC registration requirements. "But to protect investors, this innovation necessitates the SEC's thoughtful oversight of digital markets and enforcement of existing laws". Some of the enforcement actions even include tokens traded on EtherDelta.

The SEC says that Coburn has already consented to the order and agreed to pay over $300,000 in fines and penalties.

The SEC statement further suggested that the penalty may have been reduced as a result of Coburn's cooperation in the matter.

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