Coinbase CEO Brian Armstrong urged the U.S. Commodity Futures Trading Commission (CFTC) against “creating enforcement actions against decentralized (DeFi) protocols” because “it’s highly unlikely the Commodity Exchange Act” applies to them, according to a Sept. 14 post on X (formerly Twitter).
According to Armstrong, these protocols are not “financial service businesses” and should take these cases to court to “establish precedent.” “The courts have proven to be very willing to uphold [the] rule of law,” he added.
CFTC targeting DeFi protocols
Armstong’s statement is coming on the heels of the recent unregistered derivatives trading charges filed by the CFTC against three DeFi protocols, including Opyn, Deridex, and ZeroEx.
In bringing the charges, the regulator’s director of enforcement, Ian McGinley, said, “DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts.”
McGinley restated his position about these protocols in a recent speech at the Practising Law Institute, where he said unregulated DeFi exchanges pose an “obvious threat.” In his words:
“The existence of unregulated DeFi exchanges is an obvious threat to the markets regulated and customers protected by the CFTC, and it is one we have taken very seriously.”
Will the CFTC be a worse regulator than the SEC?
The CFTC’s recent approach to the crypto industry is similar to actions taken by its sister regulatory agency, the U.S. Securities and Exchange Commission (SEC), which has brought several enforcement actions against major crypto companies like Binance and Coinbase.
Market observers have increasingly criticized the SEC’s approach, with many urging lawmakers to hand over the emerging industry’s oversight to the CFTC.
However, Delphi Labs general counsel Gabriel Shapiro warned that the “CFTC would be an even worse regulator for crypto than the SEC.” According to him, the Commission is well-informed about crypto and DeFi facts, and he is convinced that the “CFTC views DeFi as illegal in the U.S. for commodity derivatives.”
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