The days when there were just a few recurrent regulatory issues in the world of blockchain, cryptocurrency and decentralized finance (DeFi) may now be behind us. For the past few years, regulatory attention seemed to focus mainly on several recurrent issues such as whether a particular token or cryptocurrency was a “security” under federal law—with all the attendant legal requirements and restrictions such a designation carries with it for issuers, exchanges, and buyers and sellers—and the tax consequences of cryptocurrency transactions and payments, given the IRS position that for tax purposes cryptocurrency is property rather than currency. While those issues haven’t gone away, recently regulators from a number of different federal, state and, indeed, international bodies have emerged forcefully to raise a host of new issues they find implicated by new developments. As FinTech innovation and products take more ambitious and creative forms, it seems regulators have become more ambitious and creative themselves, and no less determined to act.

Derivative Instruments and the CTFC

On June 8, 2021, Commissioner Dan M. Berkovitz of the Commodity Futures Trading Commission (CFTC) gave a keynote address at the FIA and SIFMA-AMG, Asset Management Derivatives Forum 2021, in part to address his “concerns regarding the rise of decentralized financial markets.” In his remarks, Commissioner Berkovitz argued that the financial system had “developed over the past two or three hundred years” to “rel[y] extensively on financial intermediaries … to reliably provide critical financial services to support the financial markets and the investing public.” He pointed to intermediaries performing roles such as providing information to the public, being subject to “fiduciary or other legal duties to act in the best interests of their customers,” providing liquidity and stability in times of stress, providing custody of assets, preventing money-laundering, operating through “established standards of conduct,” and having legal responsibility and accountability when standards are not met or “things go wrong.”