Coinbase CEO Brian Armstrong has thrown his support behind decentralized finance (DeFi) and called for a legal precedent in its favor. In a recent social media post, Armstrong urged DeFi protocols to explore legal actions in court to establish their legitimacy in the eyes of the law. He argued that the current approach of regulatory crackdowns on DeFi could drive this vital sector of the economy to offshore jurisdictions.
One of Armstrong’s key points is that DeFi protocols operate differently from traditional financial service businesses, making it debatable whether they fall under the purview of the Commodity Exchange Act. He has called on the United States Commodity and Futures Trading Commission (CFTC) to refrain from taking enforcement actions against DeFi projects.
This plea comes after the CFTC’s recent actions against three DeFi firms accused of unlawful trading of Bitcoin contracts. The watchdog alleges that these exchanges facilitated unregistered and illegal trading in crypto derivatives.
Armstrong is not alone in advocating for a more measured approach to DeFi regulation. Summer Mersinger, a Republican on the CFTC’s commission, has emphasized the importance of setting open and accessible standards for DeFi rather than immediately resorting to enforcement actions. She expressed concerns that the regulatory panel might focus too heavily on legal measures at the expense of public engagement and rule establishment.
The CFTC has had recent successes in legal battles against DeFi projects. In a recent lawsuit, the CFTC prevailed in its allegations that Ooki DAO operated an illegal trading platform and violated other rules. A federal court ordered Ooki DAO to shut down and fined its operators more than $600,000.
The increased scrutiny of cryptocurrency startups extends beyond the CFTC. The U.S. Securities and Exchange Commission (SEC) has also launched investigations into cryptocurrency exchanges like Coinbase and Binance.
Brian Armstrong’s call for legal precedent and a more nuanced approach to DeFi regulation has gained momentum, with support from some politicians like Summer Mersinger. The CFTC’s recent legal victories and increased regulatory focus on the crypto industry underscore the evolving landscape of cryptocurrency regulation in the United States.