The CFTC’s Technology Advisory Committee participated in a briefing on DeFi and discussed bringing developers to legal responsibility for improper use of the protocols.
The Commodity Futures Trading Commission (CFTC) is trying to understand and understand the workings of the decentralized finance industry (DeFi). This week, the CFTC’s Technology advisory committee heard a presentation by law professor Aaron Wright and lawyer Gary DeWaal titled ” The Growth and Regulatory Challenges of Decentralized Finance.”
For the most part, the presentation was a briefing on the work of decentralized platforms, which are actively developing during this year. Wright summarized the benefits of DeFi as the potential to provide services at a lower cost to more people by automating a number of processes involved. He also noted that software tools can provide more flexibility in general.
“Another interesting advantage of decentralized financial projects is that they can be put together and interact between them,” Wright said. “Developers often describe them as financial blocks, similar to Lego.”
Compliance with regulatory requirements Wright noted that DeFi developers usually do not think about the legal side of the issue:
“These contracts are not subject to the law. This does not mean that they are illegal. This means that they are designed at a technical level, not necessarily with regulatory requirements in mind.”
Among the potential risks of DeFi platforms, the speakers pointed to the high technological barriers to entry into the industry. In addition, the constant problem of minimum registration requirements or their absence poses a threat of violating the principles of KYC and anti-money laundering.
DeVaal answered a question about who the authorities can hold accountable if the DeFi platform operates illegally. There was much speculation that more lawsuits would be filed against the software developers later on. DeVaal noted that this is a serious legal barrier.
“Generally, in the US, software development is a protected activity under the First Amendment,” DeVaal said. “There are many ways to use DeFi. But the First Amendment is not a universal criterion.”
According to lawyers, secondary liability can threaten a wide range of people using the DeFi protocols. Among the possible solutions, Wright mentioned discussions of a potential “safe harbor” proposed in the SEC, and stated:
“A safe harbor can provide responsible development to protect the interests of consumers without limiting innovation.”
Recall that earlier this year, the SEC Commissioner Hester Peirce suggested
introducing a three-year regulatory “vacation” for cryptocurrency startups.