CFTC Commissioner proposes sandbox scheme for digital assets amidst crackdown on DeFi platforms

Caroline Pham, a Commissioner of the U.S. Commodity Futures Trading Commission (CFTC), proposed that the financial regulator launch a pilot regulatory sandbox scheme for digital assets in a speech delivered before the Cato Institute on Sept. 7.

In the speech, Commissioner Pham highlighted how the U.S. hands-off approach has placed it behind other countries as regards the development of clear regulations for the blockchain and digital asset industry.

The Commissioner noted that a regulatory sandbox program tailored for the emerging industry would help to support the development of compliant digital asset markets and tokenization. She continued that the program would have input from major stakeholders in the field who would “ensure the integrity of our markets and impartial access, foster liquidity and competition, address potential conflicts and risks, and prevent fraud, abusive practices, and manipulation.”

She added:

“The CFTC should propose and adopt rules establishing a pilot program for a specific period of time that incorporates many of the components drawn from past pilot programs, including: registration and eligibility requirements, financial resources and other conditions, risk management, products and contract terms, and other requirements including disclosures and reporting.”

CFTC targets several DeFi platforms

Three DeFi platforms, Opyn, Deridex, and ZeroEx, have chosen to settle the unregistered derivatives trading charges filed against them by the CFTC. 

According to a Sept. 7 statement, the platforms paid fines ranging from $100,000 to $250,000 and were ordered to cease further law violations.

Ian McGinley, CFTC’s Director of Enforcement, said, “Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts.” McGinley added that the department would continue aggressively pursuing unregistered platforms operating within the U.S.

However,  CFTC commissioner Commissioner Summer Mersinger voiced her disagreement with the regulatory action, arguing that the regulator had not provided any grounds connected to fund misappropriation or other illicit activities.

Mersinger said:

“I am concerned that the Commission in these cases is taking another step down the path of bringing enforcement actions when we should be engaging with the public.”

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