CFTC Takes Enforcement Action Against Three DeFi Firms

• CFTC initiates enforcement actions against three DeFi firms-Deridex, Opyn, and ZeroEx, demanding to pay civil penalties of $250K, $200K and $100K.
• Opyn and Deridex face multiple charges, including failing to register as SEFs or DCMs and lacking proper registrations.
• Twitter claims that CFTC’s enforcement approach resembles “regulation by enforcement”.

The US Commodity Futures Trading Commission (CFTC) declared enforcement actions against three decentralised finance (DeFi) firms and hinted that there might be more to follow. The CFTC has charged Deridex, Inc., Opyn, Inc., and ZeroEx (0x), Inc. with providing illegal derivatives trading.

CFTC took to Twitter to provide insights on the charges imposed on the three DeFi firms:

Opyn Inc., ZeroEx Inc., and Deridex Inc. were alleged by the CFTC of violating the agency’s regulations by forcibly allowing US clients to trade digital-asset derivatives without registering. The regulator issued cease-and-desist orders to the companies and demanded that they pay civil monetary penalties of $250,000, $200,000, and $100,000 respectively. These terms were accepted by the companies as payment for the charges. 

Opyn and Deridex were charged with a variety of offences, including failing to register as swap execution facilities (SEFs) or designated contract markets (DCMs). They are also charged with failing to register as futures commission merchants (FCMs) and for failing to implement a customer identification programme as part of a Bank Secrecy Act compliance programme. 

ZeroEx (known for its 0x protocol), Opyn, and Deridex have also been charged with providing leveraged and margined retail commodity transactions in digital assets illegally. Apart from the penalties, they violate the Commodity Exchange Act (CEA) and CFTC regulations. 

Ian McGinley, Director of Enforcement, emphasised that DeFi operators cannot use smart contracts to make illegal transactions legal, stating, 

Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts. The DeFi space may be novel, complex, and evolving, but the Division of Enforcement will continue to evolve with it and aggressively pursue those who operate unregistered platforms that allow U.S. persons to trade digital asset derivatives.

Some Twitter users are concerned about the CFTC’s enforcement approach, claiming that it resembles regulation by enforcement. Stephen D. Palley, Partner in Brown Rudnick’s Digital Commerce group, took to Twitter to criticise the CFTC as “an unelected administrative agency acting as a court” without judicial appointments, citing the use of judicial captions in consent orders.

He emphasised the broad scope of this interpretation, implying that even posting links to websites interacting with smart contracts could be considered “facilitating” in the eyes of the CFTC. He tweeted that administrative agencies should not be allowed to act as courts, adding, “Allowing the state to charge and adjudicate is wrong, un-American, and unconstitutional.”