Yesterday, the CFTC (the commodities equivalent of the SEC) issued fines to 3 different DeFi companies for failing to comply with various registration requirements, failing to comply with KYC requirements, and offering leveraged and margined retail transactions.
You can read the CFTC's press release here: cftc.gov/PressRoom/PressReleases/8774-23
Many of you have read some of my posts taking Gary Gensler and the SEC to task for their "regulation by enforcement" agenda, failing to issue rules requested by the crypto industry, and gross overreach and attempts to expand their jurisdiction.
Let me be clear: The SEC has done all of those things and more and is a government regulator that is out of control. So too is the CFTC. As CFTC Commissioner Mersinger wrote in her dissent:
"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. It is important to emphasize that “Enforcement First” has not always been the CFTC’s default position."
She further writes: "[T]hese cases represent another example of the CFTC swinging its enforcement hammer when other, more precise tools would be a better fit for the job, I respectfully dissent."
And most troubling, and correctly, points out:
"The handling of these matters through enforcement obscures that one of the cases before us is not like the others. In that case, the Respondent’s technology enabled users to execute spot trades in thousands of different...
digital asset trading pairs; the CFTC does not have regulatory jurisdiction over such spot trading, which is lawful activity under the CEA. The Commission nonetheless holds this Respondent liable because its protocol also was used to trade some leveraged digital assets...
issued by unaffiliated third parties, which could be created by utilizing a set of smart contracts designed and deployed by third parties that automatically executes a series of actions on other third-party DeFi lending platforms and decentralized exchanges...
to generate leverage. This raises questions: If a DeFi protocol is developed for lawful purposes but is used for purposes that violate the CEA, should the developer be held liable?"
You can read Commissioner Mersinger's full dissent here: cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090723
Ultimately, the CFTC is engaging in the exact same tactics as the SEC - regulation by enforcement, refusal to engage with the crypto industry, pretending that all technologies are the same, and exceeding its statutorily conferred authority.
In these cases, the Ds have accepted their fines. But, there will be future cases that are litigated, & the CFTC will lose, especially on the point that creation of legal software, that is later used for illegal purposes by third parties, confers liability on its programers.
That is like saying that Microsoft is liable when a crazy person sends a threatening email to the President because Microsoft created Outlook and Exchange. The software itself can be used for legal and illegal purposes; it is the user who is liable, not the programer.
But the point of this thread is not to point out the SEC's and CFTC's failings. Instead, the point is to point out that overzealous regulators will continue to harass the crypto industry until they are replaced. Yes, we will win in court, but that is slow and expensive.
We need to focus on winning in the legislative process and in the agencies themselves and there is only one way to do that: win at the ballot box.
There have been calls for Biden to fire Gary Gensler. But what do you think will happen when/if he does? Do you think he'll replace him with someone who has completely different policy goals? No. He will replace him with someone who pushes the exact same policies.
Do you think agencies will reverse their positions just because they lose in court? No, absolutely not. They will try to distinguish and differentiate the facts of the court cases to the facts before them to implement their policy goals.
The actions of the SEC, CFTC, and various other governmental agencies are intentional and are designed to implement specific policy goals. In this case, that policy goal is to regulate crypto out of existence, or at least into the shadows.
Why? There are lots of potential reasons. Some "valid" and some not. Some people honestly believe that crypto is used solely for criminal activity and by terrorists and they have a valid interest in limiting those uses cases.
Other people, however, simply want to make sure their donors continue to get their fees (bank and transaction fees would reduce precipitously if intermediaries weren't necessary - as DeFi allows).
The reason for the policy goals don't actually matter. What matters is that at this point there are lots of people who believe the correct policy is to kill crypto, they hold elected office, and you're never going to change their minds.
As I said above, our only option is to win in the legislative process and at the agencies themselves, and the only way to do that is to win elections. Primary season is incoming, so you have a very real & tangible way to help: donate to primary candidates who are pro crypto.
When those candidates win their primaries, donate to them in the general election and, of course, VOTE FOR THEM!
So yes, we will win in Court, but things will be a lot better for us if we avoid Court and just win at the ballot box.