CFTC Commissioner Dan M. Berkovitz has called for a derivative on unregulated DeFi platforms

Speaking at the “Climate Change and Decentralized Finance: New Challenges for the CFTC” conference yesterday, Commissioner Dan M. Berkovitz of the Commodity Futures Trading Commission (CFTC) had many negative views on DeFi.


CFTC Commissioner Dan M. Berkovitz

CFTC Commissioner Dan M. Berkovitz has called for a derivative on unregulated DeFi platforms

As for Berkovitz, when he spoke about DeFi, he said he had consulted the definition on Wikipedia. Furthermore, his research is partly based on Google searches.

He said:

“If you type DeFi into Google search, a top link is to a CoinDesk article, What is DeFi? It’s an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.”

Berkovitz believes DeFi derivatives platforms may violate the Commodity Exchange Act (CEA)

“Not only do I think that unlicensed DeFi markets for derivative instruments are a bad idea, but I also do not see how they are legal under the CEA.”

According to Berkovitz, CEA requires futures contracts to be traded on a designated contract market (DCM) licensed and regulated by the CFTC. However, he asserts that no DeFi platform is registered as a DCM or SEF.

Therefore, Berkovitz suggests that regulators familiarize themselves with DeFi derivatives and other applications amid the explosive growth of the field. Furthermore, with a huge amount of liquidity injected into the market over the past twelve months, it seems like strict regulation is needed to protect DeFi consumers.

Berkovitz stated:

“Given the explosive growth of this sector, federal regulators should become familiar with this new technology and its potential uses and be prepared to protect the public against misuse.”

And Coin Metrics co-founder Jacob Franek was quick to criticize the commissioner’s study. He notes that Berkovitz needs to do more than read an article on CoinDesk.

He said:

“I’m not sure which supporters of DeFi you spoke with, but the core value proposition is absolutely *not* to cut out intermediaries simply to offer investors more control over investments. Further, you seem confused about what DeFi is actually and how it operates.”

However, the trustee warned that the emergence of unregulated entities from the shadow banking system could lead to competition with regulated entities. And from there, expose them to more risk to generate higher yields or seek less regulation.

He said:

“In my view, it is untenable to allow an unregulated, unlicensed derivatives market to compete, side-by-side, with a fully regulated and licensed derivatives market.”

Berkovitz questions DeFi advocates’ argument that cutting out intermediaries can give investors better returns and greater control over their investments. He argues that intermediaries such as banks, exchanges, futures commission sellers, clearinghouses, and asset managers have been developing the banking and financial model for more than 200 to 300 years. years, reliable support for financial markets and the investing public.

He concluded:

“One of the key reasons our financial system is so strong is the legal protections that investors enjoy when they invest their money in U.S. markets, most often through intermediaries.”

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