Commissioner Dan M. Berkovitz of the Commodity Futures Buying and selling Fee (CFTC) believes DeFi derivatives platforms could contravene the Commodity Change Act (CEA).
Talking as a part of a June 8 keynote handle dubbed “Climate Change and Decentralized Finance: New Challenges for the CFTC,” Berkovitz notes that:
“Not only do I think that unlicensed DeFi markets for derivative instruments are a bad idea, but I also do not see how they are legal under the CEA.”
Berkovitz famous that the “CEA requires futures contracts to be traded on a designated contract market (DCM) licensed and regulated by the CFTC,” nonetheless he asserts that no DeFi platforms are registered as DCMs or SEFs.
Through the keynote, the commissioner emphasised the necessity for regulators to grow to be aware of DeFi derivatives and different purposes amid the booming progress of the sector.
He referenced the large quantity of liquidity pumped into the market over the previous twelve months, noting that now that “you’re talking real money” there wants be stringent regulation in place to guard DeFi shoppers:
“Given the explosive growth of this sector, federal regulators should become familiar with this new technology and its potential uses and be prepared to protect the public against misuse.”
Apparently, Berkovitz references a Wikipedia definition of DeFi, and notes that his analysis was based mostly partly on a Google search. “Should you sort “DeFi” into Google search, a prime hyperlink is to a CoinDesk article, ‘What is DeFi?’;” he stated.”[It’s] an umbrella time period for a number of monetary purposes in cryptocurrency or blockchain geared towards disrupting monetary intermediaries.”
The Co-founder of Coin Metrics Jacob Franek was fast to criticize the commissioner’s analysis, noting that he “needs to do more than read a CoinDesk article”:
And if this is the top stage of the CFTC’s evaluation — ooh boy — now we have some educating to do or the Commissioner must do greater than learn a Coin Desk article. https://t.co/AERH4IOTUa
— Jacob FranΞk (@panekkkk) June 9, 2021
The commissioner warned that the emergence of the unregulated entities from the shadow banking system could lead to competitors with regulated entities, main them to imagine both “more risks in order to generate higher yields “ or to seek less regulation to “level the playing field.”
“In my view it is untenable to allow an unregulated, unlicensed derivatives market to compete, side-by-side, with a fully regulated and licensed derivatives market,” he stated.
Berkovitz questioned the argument put forth by DeFi proponents that chopping out intermediaries can supply buyers higher returns and extra “control over their investments.”
He argued that intermediaries equivalent to “banks, exchanges, futures commission merchants, payment clearing facilities, and asset managers” have developed a banking and finance mannequin over 200 to 300 years which reliably assist “financial markets and the investing public.”
“One of the key reasons our financial system is so strong is the legal protections that investors enjoy when they invest their money in U.S. markets, most often through intermediaries,” he stated.