Galaxy Digital to SEC: Our AMMs Are Basically Just Fancy Liquidity Vending Machines, Not Exchanges

Mike Novogratz's Galaxy Digital has fired another shot across the SEC's bow, this time arguing that automated market makers don't fit the regulatory mold of "exchanges" or "dealers." Because apparently, when you build a protocol that just runs math on a server somewhere, you're not actually "running" an exchange—you're just letting code do the heavy lifting while humans pretend they have plausible deniability.

In a letter to the SEC Crypto Task Force, Galaxy Digital laid out why AMMs shouldn't be lumped into the same regulatory bucket as traditional exchanges. Their argument hinges on a few key points: AMMs lack discretionary control, operate with full transparency, use deterministic settlement, and offer non-discriminatory access to anyone who wants to trade. It's basically the "we're just a vending machine, not a store" defense, but with more lawyers and fewer Flamin' Hot Cheetos options.

On the dealer side, Galaxy Digital argues liquidity providers on these AMMs are just trading for their own accounts. They have no customers, don't solicit orders, and don't post two-sided quotes. So, the firm contends, traditional dealer registration requirements shouldn't apply. Basically, they're saying "your honor, the liquidity provider was just vibing in a pool—it wasn't technically solicitation if nobody asked."

The crypto firm is pushing the SEC to create a clear pathway for tokenized securities trading on AMMs—specifically by adding them under an innovation exemption framework. They'd like to see conditional relief that includes whitelisting, volume caps, and required disclosures to keep things above board. Imagine giving DeFi a participation trophy labeled "conditional regulatory exemption"—it comes with rules, a GPA requirement, and mom still has to sign off.

Galaxy Digital submitted this letter in response to contrary viewpoints from SIFMA, making their case that existing Exchange Act goals and policies won't be undermined if AMMs get a regulatory pass. Because apparently, the solution to "our AMM might accidentally be an illegal securities exchange" is just writing a very polite letter explaining why math isn't a securities violation.

This follows earlier signals from the SEC about potentially exempting DeFi platforms that operate through covered user interfaces from broker-dealer registration requirements. Could AMMs be next on the regulatory nice list? Only time will tell. But if there's one thing we've learned from watching regulators stare at DeFi for five years while it grew to $50 billion, it's that clarity is definitely coming any day now.