DLC CFTC Targets 3 DeFi Platforms Over Illegal Derivatives -

CFTC Targets 3 DeFi Platforms Over Illegal Derivatives

In a significant move, the U.S. Commodity Futures Trading Commission (CFTC) has taken action against operators of three decentralized finance (DeFi) platforms for their alleged involvement in illegal trading of digital asset derivatives. This regulatory crackdown marks a notable development in the evolving landscape of cryptocurrency regulations.

The CFTC’s enforcement actions were directed at three Delaware-registered companies operating within the DeFi ecosystem. Among them were Opyn and Zeroex, both headquartered in California, as well as Deridex, based in North Carolina. The CFTC has formally issued orders, effectively filing and settling charges against these entities.

The charges against Deridex and Opyn primarily revolve around their failure to register as a swap execution facility (SEF) or designated contract market (DCM), as well as their failure to register as a futures commission merchant (FCM). Additionally, these two entities neglected to adopt a customer identification program, a requirement imposed on FCMs. Together with Zeroex, they were also accused of illegally offering leveraged and margined retail commodity transactions involving digital assets.

The CFTC explained that these cryptocurrency firms were operating blockchain-based protocols and smart contracts, which the Commission argued functioned in a manner akin to traditional trading platforms. They purported to offer users the ability to engage in transactions within a decentralized environment, a hallmark feature of DeFi.

As part of the enforcement actions, the CFTC has imposed civil monetary penalties on Opyn, Zeroex, and Deridex, amounting to $250,000, $200,000, and $100,000, respectively. Furthermore, these companies have been instructed to cease and desist from violating the Commodity Exchange Act (CEA) and CFTC regulations.

Commenting on the charges, Director of Enforcement Ian McGinley emphasized that the notion of unlawful transactions becoming lawful through smart contracts is unfounded. He stated, “Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts. They do not.”

While acknowledging the novel and complex nature of DeFi, McGinley also asserted that the CFTC would continue to adapt and actively pursue those who operate unregistered platforms allowing U.S. individuals to trade digital asset derivatives.

It’s worth noting that the CFTC’s press release commended the substantial cooperation of the DeFi firms during the investigation, resulting in reduced penalties for them. These actions take place against the backdrop of an ongoing crackdown on the cryptocurrency sector in the United States, involving both the CFTC and the Securities and Exchange Commission (SEC). The CFTC has made it clear that its investigative focus remains on the DeFi space as part of its broader enforcement efforts within the crypto industry.

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