- The CFTC has accused three DeFi protocols of illegal derivatives trading, leading to cease-and-desist orders and penalties
- Opyn, ZeroEx (0x), and Deridex are alleged to have offered unauthorized leveraged commodity transactions with digital assets
- The CFTC’s actions have prompted some in the crypto industry to reconsider their views on the agency’s regulatory approach
The Commodity Futures Trading Commission (CFTC) yesterday accused three DeFi operations – Opyn, ZeroEx (0x), and Deridex – of engaging in illegal derivatives trading and hit them with cease-and-desist orders. The allegations stem from the trio’s use of blockchain-based protocols and smart contracts to operate their trading platforms, resulting in an operational freeze and penalties of $250,000, $200,000, and $100,000, respectively, to settle the charges.
CFTC: Smart Contracts Do Not Legalize Unlawful Transactions
The three companies are accused of unlawfully offering leveraged and margined retail commodity transactions using digital assets. Opyn, associated with the oSQTH token, is also accused of failing to register properly as a swap execution facility, a designated contract market, and a futures commission merchant, as well as failing to establish a customer identification program to meet Bank Secrecy Act requirements. Deridex, based in North Carolina, faces similar allegations.
CFTC Director of Enforcement Ian McGinley commented, “Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts. They do not.” One CFTC commissioner dissented in the enforcement vote, expressing concern that the Commission was taking enforcement actions without clear evidence of customer fund misappropriation or harm to market participants by the DeFi protocols.
DeFi Projects Will Have to Adapt
The CFTC has long been seen as a more judicious judge of crypto products than the Securities and Exchange Commission, but this action has led to some influential actors changing their minds:
Perhaps we should lay to rest the idea that the CFTC is “a better regulator” for crypto than the SEC.
Today, the CFTC violated the court’s opinion in the Uniswap class action—and its own principles—in an attack on DeFi.
Read @cftcmersinger‘s dissent: https://t.co/iJJrT7Px7y
— Jake Chervinsky (@jchervinsky) September 7, 2023
As well as paying the fines, the three projects will have to change their protocols to ensure they do not fall foul of the CFTC’s rules again, while others will undoubtedly sit up and take notice of this latest ruling.
