Zachary Coburn founder of Etherdelta has been prosecuted by the US financial regulatory authority the SEC for running an unregistered securities exchange. Coburn has agreed to pay $300,000 in disgorgement (repayment of illegal gains) in order to prevent an aggressive punitive prosecution. He also paid another $88,000 in the form of penalties and interest. This is all despite the fact that Etherdelta was just another ERC20 contract on the Ethereum chain, is decentralized and Coburn left Etherdelta in late 2017. Add to that the case is continuing and an active prosecution could still yet occur.
EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,
Stephanie Avakian, Co-Director of the SEC's Enforcement Division.
- This has serious implications for crypto -
- Decentralization do not protect entities from prosecution by individual hostile states
- Decentralization does not protect individuals, or potentially even users, from prosecution from individual hostile states.
- The door is now open for other hostile states to prosecute Coburn.
- Decentralization potentially allows every hostile state to attack that entity and persons operating within it. Instead of being a merit decentralization becomes a liability.
If the SEC starts going after more decentralized exchanges, and it is suggested that they will, then no decentralized exchange is safe and the model will be dead. The only option will be to do what non-decentralised exchanges like Bittrex is doing and separate US accounts from others. If other states start behaving aggressively it is going to get more and more complicated with all exchanges insisting on KYC. Idex has recently introduced KYC and that has alienated itself against crypto uses and caused a huge backlash. Even so it is still open to being prosecuted for historical trading.