Category Archives: ERC-20 tokens

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Etherdelta Founder Fined $388,000 by SEC

In a landmark ruling for decentralized cryptocurrency exchanges, the founder of Etherdelta, Zachary Coburn, has been ordered by the United States Securities and Exchange Commission (SEC) to pay a USD 388,000 fine.

Etherdelta was until now among the top so-called decentralized exchanges. Its trading volume has crashed to USD 250,000 per day due to this news and it seems users have gone over to IDEX which now has USD 3 million of daily trading volume.

Etherdelta offers trading of Ethereum ERC-20 tokens, most of which are from initial coin offerings (ICOs) and can be considered securities by some jurisdictions, certainly by the SEC. The exchange did not have a license to operate as a securities exchange and Colburn is found liable for this since he created the exchange and operated it from July 2016 until it was sold to foreign investors in November 2017.

Coburn is being ordered to pay a disgorgement of USD 300,000, USD 13,000 of pre-judgment interest, and USD 75,000 to the SEC. The fines could have been heavier but apparently, Coburn worked closely with regulators and prosecutors.

This case sets a precedent where someone who creates the code for a decentralized exchange could be heavily fined by the SEC. This ruling could mean decentralized exchanges are considered illegal in the United States and therefore illegal worldwide. Even if a decentralized exchange tried to ban United States users, little could prevent enforcement scrutiny, as was seen with 1Broker, which was investigated by an undercover agent from the Federal Bureau of Investigations, paving the way for a lawsuit.

It would seem the only way to successfully launch a decentralized exchange is to retain full anonymity, extending decentralization to the hosting and management of the exchange hosting and software itself.

Bisq is a better example of a decentralized exchange, but still not 100% decentralized or anonymous. Most decentralized exchanges available fall short of true decentralization and autonomy, although that would be arguably impossible to create with today’s technology.

 

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