The US Securities and Exchange Commission (SEC) has charged the founder of decentralized Ethereum exchange (DEX) EtherDelta with operating an unregistered exchange.

As a DEX, the crypto trading platform allowed users to trustlessly trade Ethereum-based tokens without registering accounts or entrusting their funds to an exchange-controlled wallet. Trading was managed by a smart contract, though the exchange relied on off-chain infrastructure maintained by its operator.

According to the SEC, the EtherDelta platform illegally allowed users to trade tokens that the SEC considers to be securities under federal law, making it an unregistered securities exchange.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division.

“We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology,” added Steven Peikin, co-director of the SEC’s Enforcement Division. “But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”

Zachary Coburn, EtherDelta’s founder, consented to the order and agreed to pay $300,000 in disgorgement, along with $13,000 in prejudgment interest and a $75,000 penalty, though he has not admitted or denied the SEC’s findings.

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