CFTC Resolves Case With DeFi Protocols After Monetary Settlements

The regulatory enforcement actions against the crypto and DeFi entities have become common in the past few months. Both sides do not refrain from partaking in legal tussles. Settlement of charges outside the legal jurisdictions also emerged as a suitable option in most of the cases. Recently, the CFTC went ahead with settling the charges that it imposed against several DeFi protocols. 

According to the September 7, 2023 press release of the United States Commodity Futures Trading Commission (CFTC), it is going to settle with DeFi platforms including ZeroEx, Opyn, and Deridex. 

All three crypto entities were charged for offering leveraged and margined retail commodity transactions illegally with cryptocurrencies, the regulator stated. Deridex and Opyn had allegations of not registering as a swap execution facility, failing to register as futures commission merchants, and not adopting a customer identification program that comes under compliance with the Bank Secrecy Act. 

CFTC imposed a $200,000 civil penalty on ZeroEx. Opyn and Deridex would be paying $250,000 and $100,000 in fines as per the commodities regulator’s order. 

Director of Enforcement at CFTC, Ian McGinley said, “Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts…They do not.”

CFTC Charged Prominent DeFi Players

ZeroEx Inc. is primarily recognized for developing the 0x Protocol. 0x was initially viewed as a promising foundation for Ethereum-based decentralized exchanges but it faced competition from current leaders like UniSwap which now dominates the space. 

While long-term trading volumes are no longer accessible, market rankings offer insights into 0x’s previous prominence. In 2018, 0x’s ZRX token frequently held a position among the top 30 cryptocurrencies by market capitalization. 

However, today, ZRX is ranked below the 700 largest cryptocurrencies, while UniSwap’s UNI token rose to become the 24th largest cryptocurrency. Consequently, the recent action by the CFTC holds significance as it focuses on a former leading contender in the DeFi space.

In its actions, the CFTC also took aim at Opyn, a decentralized platform for Ethereum and stablecoin investments. The CFTC asserted that Opyn’s oSQTH tokens are considered commodities and can only be traded on registered exchanges. The value of the oSQTH token is calculated based on a squared ETH-to-USDC index administered by the company.

The CFTC’s actions extended to Deridex, a now-defunct trading platform operating on Algorand. The CFTC determined that Deridex’s perpetual contracts, which derive their value from the relative performance of the STABL2 token and another asset, meet the criteria to be classified as commodities.

SEC is Settling Down; But Without Monetary Penalties 

In another case, involving the Securities and Exchange Commission (SEC) with a crypto company, the regulator agreed to a settlement without imposing penalties. 

Nashville-based cryptocurrency services company, Linus Financial, reportedly settled with the financial regulator. The company was charged for not registering its retail cryptocurrency lending product’s offer and sale. 

According to the SEC, they decided to impose no civil monetary penalties on Linus in the case of its crypto lending product dubbed Linus Interest Accounts. The cooperation of the crypto company and helping remedial actions led the regulator to refrain from taking penalties. 

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