US CFTC Charges Three DeFi Firms For Illegally Offering Crypto Derivatives Trading

On Thursday, September 7, the U.S. Commodities and Futures Trading Commission (CFTC) issued a cease and desist order on three decentralized finance (DeFi) firms - Opyn Inc., ZeroEx Inc. and Deridex Inc.

The CFTC alleged that all the three companies broke the agency’s rules by allowing US customers to illegally trade crypto derivatives without registering with the regulator. As a result, the CFTC has asked these three DeFi firms to pay civil penalties of $250,000, $200,000, and $100,000, respectively. 

Deridex and Opyn also encountered allegations of not registering as a swap execution facility (SEF) or designated contract market (DCM), as well as failing to register as a futures commission merchant (FCM).

ZeroEx faced charges for providing a "2:1 leveraged exposure to digital assets like ether and bitcoin," a service that can legally be offered only on a "registered exchange following the rules of the CEA and CFTC regulations.”

The creators of ZeroEx and its front-end operator, Matcha, stated in tweets that this leveraged product made up "less than 0.1% of Matcha's trading volume since its inception."

The U.S. government has progressively shifted its focus towards decentralized finance, often referred to as DeFi within the industry. DeFi platforms enable users to trade, borrow, and lend digital assets without the need for intermediaries. In recent months, various government agencies have issued regulations, imposed sanctions, and initiated enforcement actions aimed at bringing DeFi participants under closer scrutiny.

Speaking on the development, CFTC enforcement director 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. The DeFi space may be novel, complex, and evolving, but the Division of Enforcement will continue to evolve with it and aggressively pursue those who operate unregistered platforms that allow U.S. persons to trade digital asset derivatives.”

Not all CFTC members endorsed the agency's actions on Thursday. Summer Mersinger, a Republican commissioner, issued a dissenting statement. She argued that the regulator should prioritize establishing clear rules for DeFi rather than enforcement, particularly when dealing with platforms that have not engaged in fraudulent activities or harmed their users. 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,” she said. 

The CFTC recently achieved a victory against a decentralized autonomous organization known as Ooki DAO. The CFTC alleged that Ooki DAO was running an illicit trading platform and violating other agency regulations. In June, a federal judge ordered the organization to cease its operations and imposed a penalty exceeding $600,000.