DeFi Platforms May be Illegal Says CFTC Commissioner

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  • Commodity Futures Trading Commission (CFTC) commissioner Dan Berkovitz has claimed that DeFi derivatives platforms contravene financial law
  • Berkowitz called unregulated DeFi derivatives platforms “a bad idea”
  • Regulating decentralized entities such as DAOs could be very hard

Commodity Futures Trading Commission (CFTC) commissioner Dan Berkovitz has claimed that DeFi derivatives platforms may not be legal. In a keynote address given on Tuesday and dubbed ‘Climate Change and Decentralized Finance: New Challenges for the CFTC’, Berkovitz claimed that DeFi derivatives platforms may contravene the Commodity Exchange Act (CEA) given that none of them are registered with the CFTC. Any financial product offering futures options must be registered with the CFTC, and Berkowitz suggested that action could be taken in the future to “protect the public against misuse”.

Unlicensed DeFi Derivatives “A Bad Idea”

Berkowitz’s keynote address, which was published on the CFTC website, didn’t just criticize the lack of regulation around DeFi protocols but also their very existence. Berkowitz stated that the CEA “requires futures contracts to be traded on a designated contract market (DCM) licensed and regulated by the CFTC”, which futures-offering DeFi platforms aren’t, noting that because of this he did not see “how they are legal under the CEA.”

However, he then went further, adding that “I think that unlicensed DeFi markets for derivative instruments are a bad idea”, which is hardly surprising given his position.

Regulation Easier to Say than to Do

Berkowitz warned that without proper regulation DeFi could become an “unregulated shadow financial market in direct competition with regulated markets”, although he did not expand upon how exactly the agency would go about regulating decentralized DeFi platforms, especially DAOs, which are intentionally leaderless.

Berkowitz is the latest in a line of high ranking individuals to demand regulation of the crypto space, although the fact that there seems to be little in the way of concrete action over the issue suggests that regulating the DeFi movement is easier to talk about than to actually do.

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