Enforcement actions by the United States Commodity Futures Trading Commission (CFTC) pertaining to decentralized finance (DeFi) protocols have recently stirred up a dissident voice within its ranks. Commissioner Summer K. Mersinger, has expressed concerns over the CFTC’s tendency towards enforcement actions rather than collaborative rule-making and thoughtful engagement with public and stakeholders.
Mersinger’s call for the CFTC to be more public-facing opens an interesting discourse about how to handle ever-advancing DeFi technologies. Enforcement actions, according to Mersinger, may not always be the most effective way to address innovative creations within the DeFi space. Instead, she insists that rulemaking, alongside using other regulatory instruments, should take precedence over enforcement activities, voicing unease that the Commission may be veering more into enforcement territory when it could be more fruitfully engaging with the public.
Despite her reservations, she appears understanding of the need to apply Commodity Exchange Act (CEA) and CFTC rules in novel scenarios, particularly when it is essential to safeguard market participants from fraudulent practices. This is in line with their congressional mandate. However, the lack of evidence for misappropriation of customer funds by the DeFi protocols under enforcement, raises questions about the pre-emptive nature of these actions.
Tagging along with this discussion is Commissioner Mersinger’s uncertainty about the regulatory jurisdiction over DeFi protocols and the necessity for unambiguous rules. Her concerns supplement the perspective that perhaps the potential aftermath of enforcement activities, carried out without clear regulatory directives, could be detrimental to the flourishing DeFi landscape. Despite these challenges, DeFi related rulemaking does not feature in the CFTC’s agenda for 2023, leaving the issues fire-fightingly handled rather than proactively managed.
The imbroglio was compounded when the CFTC initiated regulatory action against three DeFi protocols – Opyn Inc., ZeroEx Inc., and Deridex Inc. – accusing them of not registering their derivatives trading offerings. The charges included not registering as a futures commission merchant or a swap execution facility, besides non-compliance with the customer provisions of the Bank Secrecy Act.
This being said, the regressive tussle between enforcement and collaborative rulemaking, needs a resolution if DeFi is to be amicably and efficiently cultivated under regulatory supervision. Perhaps a meaningful balance between the two can lead to a co-evolution of innovation in blockchain technology and its regulatory constraints. The time is ripe for much-needed middle ground to be identified and navigated through.
Source: Cointelegraph
