During a speech on Tuesday (June 8), Dan M. Berkovitz, one of the five commissioners of the Commodity Futures Trading Commission (CFTC), expressed concerns about Decentralized Finance (DeFi).

the CFTC is “an independent agency of the US government established in 1974, which regulates the US derivatives markets, which include futures, swaps and certain types of options.”

According to his bio page on the CFTC website, Berkovitz was appointed by President Trump as commissioner on April 24, 2018. He was “unanimously confirmed” by the US Senate on August 28, 2018 and “loaned out” oath ”on September 7, 2018.“ for a five-year term expiring in April 2023 ”.

His comments on DeFi were made during a opening speech (titled: “Climate change and decentralized finance: new challenges for the CFTC”) at the “2021 Asset Management Derivatives Forum»(June 8-9, 2021).

Regarding the DeFi part of his speech, Berkovitz started with this definition of DeFi from Wikipedia:

Decentralized finance (commonly referred to as DeFi) is a form of blockchain-based financing that does not rely on central financial intermediaries such as brokerage houses, exchanges or banks to offer traditional financial instruments, and instead uses contracts. smart on blockchains, the most common being Ethereum. DeFi platforms allow people to lend or borrow funds from others, to speculate on price movements on a range of assets using derivatives, to trade cryptocurrencies, to insure against risk and earn interest on savings accounts.

He then said that Google’s top search result for DeFi had directed him to an article by Coindesk, which stated that “DeFi is short for” decentralized finance, “an umbrella term for a variety of crypto financial applications. -currency or blockchain aimed at disrupting financial intermediaries “.

Berkovitz argues that although DeFi tries to eliminate financial intermediaries, they provide the public with a valuable service:

A fundamental question is whether the public will benefit from the disruption of the current financial system which relies heavily on financial intermediaries. DeFi supporters argue that cutting out middlemen gives consumers more control over their investments.

But intermediaries such as banks, stock exchanges, futures traders, payment clearing facilities, and asset managers – like many of you at this conference – have developed over the last two or three hundred years. modern banking and finance to reliably deliver essential financial services. to support the financial markets and the investing public.

Intermediaries provide information, analysis and advice to the public seeking access to financial markets. Intermediaries often have fiduciary or legal obligations to act in the best interests of their clients. They provide liquidity to the markets and support the stability of the financial system in times of stress. They provide custody of assets and guarantees for investments. They are responsible for preventing money laundering through the financial markets. Regulated and licensed intermediaries must adhere to established standards of conduct and can be held legally responsible for failure to meet those standards of conduct. Intermediaries can be held accountable when things go wrong.

He went on to say that in contrast, DeFi markets do not offer such protections:

In a pure peer-to-peer DeFi system, none of these benefits or protections exist. There is no middleman to monitor the markets for fraud and manipulation, prevent money laundering, protect deposited funds, guarantee the performance of counterparties or hold clients harmless when processes fail. A system without intermediaries is a Hobbesian market where everyone watches over themselves. Caveat emptor – “Let the buyer beware”.

He also questioned the legality of “unlicensed DeFi markets for derivatives”:

Not only do I think unlicensed DeFi Markets for Derivatives is a bad idea, but I also don’t see how they are legal under the CEA. The CEA requires that futures contracts be traded on a designated contract market (DCM) authorized and regulated by the CFTC. The CEA also provides that it is illegal for anyone other than an eligible participant in the contract to enter into an exchange unless the exchange is concluded under or subject to the rules of a DCM. The CEA requires that any device providing for the negotiation or processing of swaps be registered as DCM or SEF. DeFi marketplaces, platforms or websites are not registered as DCM or SEF. The CEA does not contain any exceptions to registration for digital currencies, blockchains or “smart contracts”.

For these reasons, Berkovitz believes that the CFTC and other financial regulators should pay more attention to the DeFi sector:

Legality aside, in my opinion, it is untenable to allow an unregulated and unlicensed derivatives market to compete side by side with a fully regulated and licensed derivatives market. In addition to the lack of market safeguards and customer protection in the unregulated market, it is unfair to impose the obligations, restrictions and costs of regulation on certain market players while allowing their unregulated competitors to ‘operate completely free from such obligations, restrictions and charges.

The experience of the development of the “shadow banking” system shows that competition between regulated and unregulated entities in the same market can cause regulated entities to take on either more risk in order to generate the higher returns needed to compete with the market. unregulated competition, or to seek less regulation for themselves in order to level the playing field. Each of these reactions can introduce significant risks to the financial system.

For all these reasons, we should not allow DeFi to become an unregulated shadow financial market in direct competition with regulated markets. The CFTC, in collaboration with other regulators, must pay more attention to this area of ​​growing concern and address regulatory violations appropriately.


The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing or trading crypto-assets carries a risk of financial loss.

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