Secondary Markets & Crypto-Exchanges

Crypto Exchanges

• Centralized Exchanges act as matching agents, counterparties & custodians
• Decentralized Exchanges are networks for peer-to-peer trading. They are matching agents but not counterparties or custodians
• Responsible for over 95% of crypto transactions

Crypto Wallets

• Hot Wallet - Connected to the Web
• Cold Wallet - A physical device that keeps cryptocurrency completely offline

Crypto Exchange Public Policy Challenges

• Markets Readily subject to Fraud, Scams, and Manipulation
• Custodial Arrangements - Exchanges and Wallets
• Complying with AML/KYC and implementing Tax Reporting
• Definitions – Securities, Commodities or Derivatives?
• Tracking Beneficial Ownership
• Remediation of Non compliant Exchanges

Investor Protection goes beyond Consumer Protection:

• Investors get Full & Fair Disclosure from Issuers
• Fraud & Deceptive Sales Practices Prohibited
• Market Integrity Promoted w/ Transparency & Anti-Manipulation
• Advisors’ Conflicts of Interest Disclosed and Minimized
• Investor Protection Bolsters Confidence in Capital Markets
• Economic Growth, Issuers and Investors all Benefit

Crypto Exchanges – Path Forward

• Custodial Duties - Fix or Spin-Off
• Illicit Activity – Comply with AML and Tax Laws
• Promote Market Integrity – Individually, SRO or Regulatorily
• Registration and Remediation – Determine and Comply
• Margin and Fee Compression
• Consolidation
• Decentralized Exchanges – Enhanced Customer UI & Adoption