CFTC Calls DeFi Exchanges 'Obvious Threat'
Date: 2023-09-14 Author: Karina Ziganova Categories: BLOCKCHAIN, BUSINESS
As the official noted in a speech at the conference of the Practicing Law Institute, DeFi protocols often offer clients trading derivatives, which most often require registration with the regulator.
McGinley argues that such platforms are a set of smart contracts. They act without following KYC rules and proper disclosure of information about corporate entities of user data to the end; Also, in some cases, financial products can only be traded by clients of a certain category on platforms that comply with the rules.
As McGinley noted, even minor inaccuracies in the smart contracts of decentralized platforms can lead to an unjustified exploit with losses of “tens or hundreds of millions of dollars” of client funds.
The activity of unregulated DeFi exchanges poses a clear threat to markets and clients protected by the CFTC, and we take this very seriously,” the official said.
McGinley, in a speech dedicated to the department’s enforcement practice, showed cases of the Polymarket and Ooki DAO projects, which were previously pursued by the Commission.
In previous weeks, three more decentralized financial platforms decided to settle claims with the CFTC, he said. McGinley noted that Opyn provided derivatives trading services to Opyn; ZeroEx and Deridex were involved in margin trading based on leveraged products. Activities related to auxiliary activities that must be registered with the Commission were also presented.
Opyn, ZeroEx and Deridex received a civil penalty from the state in the amount of $250,000 (200,000), $100 thousand US dollars.
Regarding this case, Coinbase CEO Brian Armstrong expressed hope that DeFi projects will file a lawsuit against the regulator and get their case. This could set a precedent...
The CFTC should not be forced to take enforcement action against decentralized protocols. These are not financial services companies, and it is highly unlikely that the Commodity Exchange Act would apply in this case either,” he added.
