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Galaxy Digital urged against classifying automated market makers as exchanges., 2026/04/16 19:04:08
The financial firm Galaxy Digital has urged the U.S. Securities and Exchange Commission (SEC) to permit automated market makers (AMM) to trade tokenized securities without the need for registration as exchanges.
In a letter addressed to the SEC’s cryptocurrency working group, Galaxy Digital articulated the reasons why AMMs should not be classified as exchanges under the provisions of the U.S. Securities Exchange Act of 1934. The primary distinction between AMMs and centralized exchanges that trade securities or digital goods lies in the absence of a central intermediary overseeing the order book or managing transaction clearing, as stated in the letter. Trading of digital assets occurs through self-executing smart contracts, directly between market participants. They maintain control over their private keys and do not relinquish authority to a centralized exchange acting as a custodian, Galaxy Digital explained.
The authors of the letter assert that smart contracts are open source, and all transactions, including pricing algorithms and liquidity provision, can be transparently tracked.
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Representatives from Galaxy Digital compared AMMs to protocols where transactions cannot be blocked, censored, or reversed by any central intermediary or administrator. An exception may arise when a smart contract enforces its own restrictions—such as allowing token storage only on whitelisted addresses or prohibiting storage on addresses with restricted access.
Galaxy Digital believes that AMMs do not fall under the definition of an exchange, as they operate based on autonomous code that is not controlled by any individual or group. The developers who created the protocol’s code do not oversee its operation afterward—once launched, the protocol operates independently of them.
Recently, the SEC released guidance on when decentralized finance (DeFi) protocols and cryptocurrency wallets may not need to register as broker-dealers and when this would not be considered a violation of securities laws.
