Wintermute Urges SEC to Exempt On-Chain Settlement from Outdated Rules in 2025
- Why Is Wintermute Challenging SEC's Settlement Rules?
- How Could On-Chain Settlement Transform Securities Markets?
- What's the DeFi Liquidity Provider Debate About?
- What's Driving Wintermute's Regulatory Push?
- How Might This Impact Institutional Crypto Adoption?
- What Are the Potential Risks of Deregulation?
- How Is the SEC Likely to Respond?
- What Does This Mean for Crypto's Regulatory Future?
- Frequently Asked Questions
In a bold move that could reshape crypto regulation, Wintermute Trading has called on the SEC to exempt blockchain-based securities settlement from legacy rules. The London-based OTC platform argues that applying decades-old broker-dealer regulations to on-chain transactions would stifle innovation in digital asset markets. Their proposal focuses on two key areas: allowing direct blockchain settlement without triggering consumer protection rules, and clarifying that DeFi liquidity providers shouldn't face mandatory dealer registration. This comes as institutional interest in tokenized securities reaches new heights in 2025.
Why Is Wintermute Challenging SEC's Settlement Rules?
The crypto market maker takes particular issue with Rule 15c3-3 - the Customer Protection Rule designed to prevent misuse of client funds. Wintermute contends that traders settling tokenized securities directly on-chain with counterparties controlling their own wallets should qualify for an existing exemption. "Forcing banks and legacy infrastructure into blockchain settlement cycles completely negates the efficiency benefits of this technology," wrote Wintermute in their submission to SEC Commissioner Hester Peirce's Crypto Task Force. Their data shows on-chain settlements can be completed in minutes versus days for traditional systems.
How Could On-Chain Settlement Transform Securities Markets?
By eliminating intermediaries, blockchain settlement could reduce friction by up to 60% according to BTCC Research. Wintermute envisions a system where regulated traders develop customized risk management protocols for direct peer-to-peer transactions. "Current rules were written for an era with multiple middlemen - layers that become redundant in blockchain environments," their statement explains. However, critics worry reduced intermediation might compromise investor protections that took decades to establish.
What's the DeFi Liquidity Provider Debate About?
Wintermute's second proposal tackles the trader vs. dealer distinction. They seek confirmation that proprietary traders and DeFi liquidity providers shouldn't automatically trigger dealer registration. "Providing liquidity on decentralized protocols shouldn't require SEC licensing when no customer relationships exist," the firm argued on X (formerly Twitter). This interpretation leans on the longstanding "trader exception" for firms trading solely for their own account.
What's Driving Wintermute's Regulatory Push?
The timing isn't accidental - tokenized Treasury products have seen 300% growth YTD according to CoinMarketCap data. Wintermute previously lobbied the SEC in September 2025 to clarify that network tokens like BTC and ETH shouldn't be classified as securities. Their consistent message: regulations must evolve to match blockchain's unique architecture rather than force-fitting new technology into outdated frameworks.
How Might This Impact Institutional Crypto Adoption?
Successful exemption could significantly lower operational costs for institutional participants. BTCC analysts note this might accelerate adoption of tokenized assets by traditional finance players. However, the SEC will likely demand robust safeguards before approving any reduction in intermediary oversight. The outcome could determine whether the U.S. becomes a leader or laggard in the $5T tokenized securities market projected by 2030.
What Are the Potential Risks of Deregulation?
While efficiency gains are clear, consumer advocates warn against throwing out protections developed after past financial crises. "The question isn't whether blockchain is innovative, but whether we're comfortable removing safety checks in pursuit of speed," remarked one former CFTC official. Wintermute counters that smart contracts can automate many protections currently handled by intermediaries.
How Is the SEC Likely to Respond?
Observers note Commissioner Peirce's longstanding crypto-friendly stance, but final decisions require full Commission approval. The SEC has maintained its cautious "regulation by enforcement" approach through 2025, though Wintermute praised their "openness to dialogue about adapting rules for blockchain markets." A ruling is expected before Q1 2026.
What Does This Mean for Crypto's Regulatory Future?
Wintermute's proposal tests whether regulators can reconcile decentralized finance with traditional market safeguards. Their success could pave the way for similar exemptions, while rejection might push more crypto activity offshore. As one industry veteran put it: "This isn't just about settlement rules - it's about whether regulators see blockchain as something to control or something to enable."
Frequently Asked Questions
What specific SEC rule is Wintermute challenging?
Wintermute primarily targets Rule 15c3-3 (Customer Protection Rule), arguing it shouldn't apply to direct on-chain settlements between sophisticated parties.
How would exemption benefit crypto markets?
It could reduce settlement times from days to minutes and lower costs by eliminating intermediary fees - potentially boosting institutional participation.
What's the trader vs. dealer distinction?
Dealers must register with the SEC as they handle customer orders, while traders operating solely for their own account historically qualified for exemptions.
When might the SEC decide?
Industry observers anticipate a response before Q1 2026, though the SEC hasn't committed to any timeline.
Could this apply to all crypto transactions?
Initially just for tokenized securities - assets already under SEC jurisdiction. Commodity tokens like BTC WOULD fall under different regulations.
