Smart Contract Developers May Be Held Liable by the SEC


Smart contracts, explained the U.S. Securities and Exchange Commission (SEC), “provide the means for investors and market participants to find counterparties, discover prices, and trade a variety of digital asset securities.” In its Statement on Digital Asset Securities Issuance and Trading, published Nov. 16, the SEC referred to smart contracts five times, particularly in reference to Etherdelta, whose creator was prosecuted for operating an unregistered securities exchange that ran on smart contracts he’d coded. What this ruling means for developers, moving forwards, is a matter of some debate and great concern.

Code has often been likened to free speech, with advocates adamant that developers should not be held liable for how their code is used. In the case of Etherdelta, the prosecution of Zachary Coburn was relatively straightforward, since he’d personally developed the smart contracts that powered the platform. In future, however, the SEC may not make a distinction between the developer of a piece of code and the end user. If the creator of a smart contract used to facilitate decentralized trading can be identified, that individual could conceivably be held liable for securities violations. 

Lisa Cheng is the head of R&D for Vanbex Group, parent company of smart contract platform Etherparty. She told “The SEC wants to ensure that market participants of new technologies remain compliant with the framework that they have set up for securities. Smart contract developers need to be more mindful of how tokens are coded than before.” For Etherparty, this has meant updating its Rocket tokensale creator software to facilitate security token offerings that are compliant with the legal framework set by the SEC...

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