US Securities and Exchange Commission Office photo D Ramey Logan.
The Securities and Exchange Commission (SEC) announced in a press release it sent to CoinReport that it had settled charges against Zachary Coburn, the founder of digital token trading platform EtherDelta, for operating the exchange without registration.
It is the first time that the SEC has taken action following findings that this type of platform ran as an unregistered national securities exchange.
In the SEC’s order, EtherDelta is termed “an online platform for secondary market trading of ERC20 tokens,” which are a kind of blockchain-based tokens that are generally issued in ICOs (Initial Coin Offerings).
According to the order, Coburn made the platform function as an unregistered national securities exchange.
EtherDelta offered a marketplace for uniting sellers and purchasers for digital asset securities via the collective utilization of an order book, a website that showed orders, and a “smart contract” run on the Ethereum blockchain.
The exchange’s smart contract was programmed to authenticate the orders, confirm the orders’ terms and conditions, process paired orders, and instruct the distributed ledger to be updated to mirror a trade.
Over a period of 18 months, the platform’s users carried out over 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws. Nearly every order placed on the exchange was traded following the SEC issuing its 2017 DAO Report, which resolved that specific digital assets, like DAO tokens, were securities and that exchanges delivering trading of these digital asset securities would be subject to the commission’s requirements that platforms register or run pursuant to an exemption.
EtherDelta provided trading of several digital asset securities and didn’t register as an exchange or run pursuant to an exemption.