DeFi enforcement sparks dissenting opinion from CFTC commissioner

The commissioner advocated public and stakeholder engagement through rulemaking, not just enforcement.

United States Commodity Futures Trading Commission (CFTC) Commissioner Summer Mersinger said she is concerned that the agency is considering enforcement actions related to decentralized finance (DeFi) protocols rather than engaging with the public.

In a public statement issued on Sept. 7, the commissioner expressed her misgivings about the approach taken by the CFTC in these cases, arguing that enforcement actions are not the most suitable means of addressing novel DeFi technology. The commissioner believes that the CFTC should engage with the public and stakeholders through rulemaking and other regulatory tools instead of relying primarily on enforcement actions.

Mersinger said:

“I am concerned that the Commission in these cases is taking another step down the path of bringing enforcement actions when we should be engaging with the public.”

Mersinger expressed openness to applying the Commodity Exchange Act and CFTC rules, especially when necessary to protect market participants from fraud and abuse, in line with the congressional mandate. However, she noted that the commission’s orders in these cases didn’t indicate any misappropriation of customer funds or victimization of market participants by the DeFi protocols subject to enforcement actions.

The commissioner raised questions about the regulatory jurisdiction over DeFi protocols, the need for clear rules and the potential consequences of enforcement without transparent rulemaking. Despite the challenges, the CFTC’s spring 2023 regulatory agenda does not include any rulemaking activities related to DeFi, leaving these issues largely unaddressed.

The CFTC recently announced it is taking regulatory action against three DeFi protocols for allegedly failing to register various derivatives trading offerings. The protocols are Opyn, ZeroEx and Deridex.

Deridex and Opyn face charges for not registering as swap execution facilities or designated contract markets, as well as failing to register as futures commission merchants. Additionally, the CFTC accused the two protocols of noncompliance with customer provisions outlined in the Bank Secrecy Act.

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