Fears of shady financial market call on CFTC commissioner to crack down on DeFi

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A Commissioner of the Commodity Futures Trading Commission calls for a crackdown on decentralized finance platforms (DeFi).

In a recent speech titled “Climate change and decentralized finance: new challenges for the CFTC”, Commissioner Dan Berkovitz referred to his concerns about the DeFi boom.

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

Berkovitz added,

“Not only do I think unlicensed DeFi markets for derivatives are a bad idea, but I also don’t see how they are legal under the CEA. “

Decentralized finance is an umbrella term for several financial activities, such as borrowing and lending money. However, unlike traditional finance, DeFi platforms allow participants to perform peer-to-peer transactions using blockchain technology, bypassing legacy financial intermediaries such as banks and brokerage houses. By using smart contracts instead of central financial intermediaries, DeFi also allows users to speculate on price movements, engage in crypto and derivatives trading, and earn interest on crypto assets.

Berkovitz highlighted the benefits of dealing with banks, exchanges and regulated asset managers who not only “reliably provide essential financial services to support financial markets” but can also be held accountable if something goes wrong.

“Today, the United States has the most effective and efficient capital formation and risk management markets in the world. When people around the world want to invest their money or manage their risk safely, they turn to the US financial system. One of the main reasons our financial system is so strong is the legal protection investors enjoy when they invest their money in US markets, most often through intermediaries. We have a system in which intermediaries are legally responsible for protecting client funds. In many cases, such as in the clearing system, if a counterparty does not perform, an intermediary will make the client unharmed.

In a pure peer-to-peer DeFi system, none of these benefits or protections exist.

Berkovitz concluded that the CFTC, which investigated Binance in March, should pay close attention to this “growing area of ​​concern” and appropriately address regulatory violations.

“We should not allow DeFi to become an unregulated shadow financial market in direct competition with regulated markets.”

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