Last Thursday, an enforcement action by the U.S. Commodity Futures and Trading Commission (CFTC) against three DeFi protocols was the latest event in an ongoing saga of legislative battles, district court rulings, and fights over regulation.
As the CFTC has now ordered Opyn, 0x, and Deridex to cease operations that violate the Commodity Exchange Act and CFTC regulations, some of the prominent cryptocurrency advocates are again questioning whether the regulatory landscape is conducive to entrepreneurs looking to operate in the space.
“This week’s CFTC enforcement actions expose a series of contradictions,” Marisa Coppel, senior counsel at the Blockchain Association, told The Defiant. “First, it is in direct conflict with a court’s recent opinion in Risley v. Uniswap, which held that the developers were not responsible for the misuse of their software by third parties.”
In late August, a judge dismissed a case that alleged Uniswap Labs and others were responsible for losses caused by fraudulent tokens launched by third parties on the decentralized exchange (DEX) Uniswap.
Furthermore, Coppel noted inconsistencies within the CFTC itself. She pointed to a proposal from Caroline Pham, one of the organization’s five commissioners, to create a pilot program that would allow supervised experimentation in the digital asset space.
Coppel further added that another commissioner, Summer Mersinger, released a dissenting statement. He highlighted that the CFTC has not demonstrated that the DeFi protocols in question misappropriated customer funds or otherwise caused harm to their users.
The CFTC’s action comes in a year in which markets have been rocked by numerous developments regarding cryptocurrency regulations.
Ashley Ebersole, general counsel at 0x, which paid a $200,000 fine because its Matcha aggregator offered access to leveraged assets, thinks some degree of regulation is inevitable.
“Whatever your view on regulation, it’s just a fact of life,” she told The Defiant this week.
Crackdown on cryptocurrencies
Ebersole previously worked at the SEC, which has been cracking down on cryptocurrencies.
“The more successful web3 and the DeFi sector becomes, the more attention it will receive. So there will be more need to engage with regulatory requirements,” he said.
Meanwhile, Will Warren, the co-founder of 0x, noted the difficulties inherent in regulating crypto.
“Tokens are an abstraction that can represent anything,” he said, emphasizing that it is challenging to fit this abstraction into existing regulatory frameworks. “The space as a whole is so broad that it is difficult to map it to a single individual regulatory body.”
As Chris Perkins, a member of the CFTC’s Global Markets Advisory Committee (GMAC), highlighted, the requests highlight the need to interface with key decision makers in the United States.
“Education and engagement of regulators and policymakers is imperative at this crucial time,” he told The Defiant.
Future for DeFi
However, looking to the future of DeFi, Perkins sees an end to the ambiguous regulatory environment.
“The good news is that clarity is coming, one way or another, whether through legislation or the courts,” he said. “I just hope this happens before we lose some of our most talented entrepreneurs to foreign jurisdictions that are literally beckoning them in.”
Meanwhile, Warren says Matcha has no plans to stop serving U.S. customers. “It is challenging to operate as a US company and serve users in the US, [mas] Lets do this. Cryptocurrencies are a global phenomenon and will play an important role in the future and the US will be part of it,” he said.
*Translation of the article “Latest CFTC Enforcement Actions Challenge Core Tenets of DeFi” with permission from The Defiant.
Disclaimer: The text presented in this column does not necessarily reflect the opinion of CriptoFácil.