After searching Google, the head of the CFTC said that DeFi is a “bad idea” and probably illegal

Dan M. Berkovitz, Commissioner of the Commodity Futures Trading Commission (CFTC), believes that DeFi derivatives platforms may violate the Commodity Exchange Act (CEA).

Speaking as part of a Tuesday speech titled “Climate Change and Decentralized Finance: New Challenges for the CFTC”, Berkovitz observed what:

“Not only do I think unlicensed DeFi markets for derivative instruments are a bad idea, but I also don’t see how legal they are from a CEA perspective.”

Berkovitz noted that the “CEA requires that futures contracts be traded on a designated contract market (DCM) licensed and regulated by the CFTC.” However, he stated that no decentralized finance platforms are registered as DCMs or SEFs.

During the presentation, the commissioner emphasized the need for regulators to become familiar with DeFi derivatives and other applications amid the industry’s accelerating growth.

He referred to the huge amount of liquidity injected into the market in the last 12 months, noting that now that “you’re talking about real money”; there needs to be strict regulation to protect DeFi consumers:

“Given the explosive growth of this industry, federal regulators must become familiar with this new technology and its potential uses and be prepared to protect the public from misuse”

Interestingly, Berkovitz references a Wikipedia definition of DeFi and notes that his research was based in part on a Google search. “[É] a broad term for a variety of cryptocurrency or blockchain financial applications aimed at disrupting financial intermediaries.”

Jacob Franek, co-founder of Coin Metrics, was quick to criticize the commissioner’s research, noting that he “needs to do more,” adding:

The commissioner warned that the emergence of unregulated entities in the shadow banking system it can result in competition with regulated entities, leading them to take “more risks to generate higher returns” or to seek less regulation to “level the playing field”.

“In my opinion, it is unsustainable to allow an unregulated and unlicensed derivatives market to compete side by side with a fully regulated and licensed derivatives market,” he said.

Berkovitz challenged the argument made by DeFi’s proponents that cutting middlemen could offer investors better returns and more “control over their investments.”

He argued that intermediaries such as “banks, exchanges, futures commission traders, payment clearing mechanisms and asset managers” have developed a banking and finance model for more than 200 to 300 years that offers reliable support to “financial markets and to the investing public”.

“One of the main reasons our financial system is so strong is the legal protections investors enjoy when they invest their money in US markets, most often through intermediaries,” he said.


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Thomas Miles

Cryptocurrency is the most recently discovered currency which will be likely at the help of modernization across the next few decades. With a limited control from the government, the crypto market is independent of many features of a sound market as we know it. Thomas brings these stories to us by weaving them into articles of general importance to all those looking at the fluctuations in the market, or new entries. Thomas is also the founder of Bulletin Bits and is an excellent leader. His leadership is the kind that makes him the most knowledgeable and experienced on the team. His wonderful work ethic and attitude are worthy of imitation!

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