Before it began to enjoy the "fruits of victory" that Uniswap brought to the DeFi industry in court, the U.S. Commodity Futures Commission (CFTC) immediately smashed it ruthlessly a week later and aimed its regulatory cannon directly at the DeFi derivatives market. , and even the entire DeFi industry.
On September 7, 2023, the CFTC announced penalties against three blockchain companies, Opyn, ZeroEx, and Deridex. Deridex and Opyn were accused of failing to register as a swap execution facility (SEF) or a designated contract market (DCM). Registered as a futures broker (FCM) without performing customer identification procedures. In addition, ZeroEx, Opyn and Deridex were also accused of illegally providing leverage and margin retail commodity trading of crypto assets.
The CFTC required three developer operating companies, Opyn, ZeroEx and Deridex, to pay civil penalties of US$250,000, US$200,000 and US$100,000 respectively, and required them to cease violations. Under the settlement, the three companies agreed to pay civil penalties to avoid further legal action. Although the matter has come to an end, the case may pave the way for a stricter regulatory environment in the United States, and other companies in the DeFi space may be forced to rethink their operating strategies.
CFTC Enforcement Director Ian McGinley said: “Once upon a time, there was an inherent idea among DeFi project parties that in decentralization, the chain was a place outside the law. However, this is not the case. The DeFi industry can be innovative, complex and constantly evolving. Yes, but law enforcement agencies will also keep pace with the times and actively pursue illegal unregistered platforms that allow U.S. users to trade derivatives."
Although the CFTC made the above regulatory enforcement decision, CFTC Commissioner Summer K. Mersinger expressed opposition to the CFTC’s regulatory enforcement and pointed out some problems with this regulatory enforcement. She believes that this regulatory enforcement is targeting protocols and applications in the DeFi field, and the CFTC has never been involved in this field before, so the regulatory attitude towards this field is very important.
At the same time, in this case, there is no evidence that customer funds have been misappropriated, nor that any market participant has been harmed due to DeFi protocols/applications. Although the CFTC’s tough regulatory approach can protect “imaginary investors,” it cannot promote responsible innovation and will only expel the DeFi industry from the U.S. market.
In addition, this case has once again focused on the issue of liability attribution. If the project party on the DeFi platform violates regulatory regulations, who should bear the responsibility? The perspective of most lawyers on this issue is consistent with the perspective of the judge in the Uniswap case, that is, the evil third party should be held responsible for the damage caused, rather than the developers who cannot control the evil third party to carry out the infringement. The developers are just Just post the submitted code.
However, combined with the U.S. Department of Justice’s criminal charges against the founder of Tornado Cash, the CFTC v. Ooki DAO case, and the CFTC’s regulatory enforcement this time, it can be seen that supervision does not think so. The CFTC will still attribute the responsibility of the evil third party to the developer, even if the developer cannot control the behavior of the evil third party. For example, in the regulatory enforcement against ZeroEx, the supervision did not consider whether the protocol developers were related to the listed derivatives tokens, or whether the protocol developers had the ability to control the listing of the derivatives tokens.
Jake Chervinsky, Policy Director of the Blockchain Association, one of the largest blockchain industry advocacy organizations in the United States, said that the market should abandon the concept that the CFTC is more suitable for regulating the encryption field than the SEC. He believes that the CFTC deviated from the opinions it provided in class actions such as Uniswap, violated its own principles, and attacked DeFi.
Due to the SEC's previous regulatory enforcement and judicial challenges to the encryption industry, people mistakenly believe that the CFTC may be a more friendly regulatory agency to the encryption industry, and therefore believe that more regulatory authority should be given to the CFTC. However, in the recent regulatory enforcement against DeFi projects, the CFTC has gradually shown its true attitude, which may have a devastating impact on the entire DeFi industry.
This regulatory enforcement action by the CFTC targets DeFi protocols that engage in derivatives trading or have derivatives trading functions (including decentralized exchanges based on the AMM mechanism), which has sounded a wake-up call to the industry. If these protocols provide services to US users, they may be directly regulated by the CFTC, which means that the entire DeFi industry may face huge risks. DelphiLabs Legal Director Gabriel Shapiro even quipped: "In the United States, 100% of DeFi will be illegal."
Summarize
In short, the CFTC’s regulatory enforcement actions have had a major impact on the DeFi industry and raised questions about its true intentions, causing people to re-evaluate the rationality of handing over regulatory authority to the CFTC. To make matters worse, the SEC is attacking centralized finance (CeFi), the CFTC is focusing on decentralized finance (DeFi), and FinCEN is focusing on identity authentication (KYC), anti-money laundering (AML) and counter-terrorist financing (CTF) for global crypto asset circulation. ), this may be the crypto regulatory landscape before the 2024 US election year.