XRPL Under Scrutiny: Will New SEC Rules Cripple the AMM Launch?

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SEC News Rule & upcoming XRPL AMM platform

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On February 6, the Securities and Exchange Commission (SEC) dropped a bombshell with strict rules affecting individuals providing liquidity. This includes assets like securities, government securities, cryptocurrencies, and DeFi, making it necessary for them to register with the agency.

The SEC’s rules now demand that liquidity providers on Automated Market Makers (AMMs) register with the agency if they deal with securities. This has sparked questions among crypto enthusiasts, especially in the XRP community, about the potential effects on the upcoming XRPL AMM platform.

XRPL AMM: What You Need to Know

Within the XRP community, there’s eager anticipation for the launch of the XRP Ledger’s Automated Market Maker (AMM). The XLS-30D amendment is expected to empower XRP holders to earn passive income by becoming liquidity providers on the XRPL for various assets.

$XRP trades for 8 years. SEC says it’s a security.

XRPL get NFTs. SEC says they are securities.

XRPL gets AMM. SEC says AMM LPs have to register.

Meanwhile $ETH over there with it’s ICO, disguised whales, links to China, hack scandals, rug pulls… the list goes on… anddddd pic.twitter.com/AKzgcwtDQU

— CryptoArsenal (@_CryptoArsenal) February 6, 2024

However, pro-crypto attorney Bill Morgan raises concerns about how these regulations might negatively impact entities providing liquidity in the crypto market. Morgan questions the SEC’s focus on liquidity provision and its potential to disrupt existing structures.

I wonder which entities in the crypto market will be most harmed by this penalising of liquidity provision. Why is the SEC and the vested interests it serves so concerned about liquidity provision. Decentralization of liquidity provision it seems will upset some apple carts. https://t.co/etbgXsNSEq pic.twitter.com/9prSVPXcCy

— bill morgan (@Belisarius2020) February 6, 2024

Despite concerns, there’s a silver lining for retail liquidity providers on the XRPL AMM and other DeFi platforms. The SEC guidelines clarify that these regulations won’t apply to liquidity providers with assets valued at less than $50 million. Also, since XRP is not considered a security, liquidity providers for XRP might be less affected.

Also Read: John Deaton Challenges Security Status of Bitcoin, Ethereum, and XRP Amid New Crypto Regulations

Broader Market Consequences

Attorney Morgan highlights other consequences of the regulations that the XRP community may not have fully considered. The rules now say both centralized and decentralized exchanges might need to register as an alternative trading system (ATS) or an exchange with the SEC, potentially including the XRPL DEX.

You forgot the proposed change to the definition of Exchange which could make the XRPL DEX need to be registered as an Exchange or ATS https://t.co/F4Yy7k2Obr pic.twitter.com/fPtKjdkgFf

— bill morgan (@Belisarius2020) February 6, 2024

Also, if a business gives a lot of liquidity in its regular business will now be under regulation. Simply providing liquidity could be seen as a dealing activity under the latest rule.

Morgan also points to Ripple’s Liquidity Hub, a tool aiding businesses with crypto liquidity needs. He raises concerns about whether the Liquidity Hub might be impacted by the new rule.

As the crypto community eagerly awaits further developments, questions remain about how these regulations will shape the world of cryptocurrencies. The interplay between regulatory measures and the decentralized nature of the crypto space leaves enthusiasts anticipating the next chapter

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