CFTC Files Charges Against Three DeFi Protocols

The U.S. Commodities Futures Trading Commission (CFTC) has filed and settled cases against three decentralized finance (DeFi) protocols, Opyn, ZeroEx and Deridex. The commission announced this on Thursday, warning other DeFi protocols to be cautious.

According to the CFTC, Deridex and Opyn offenses include failing to register as a swap execution facility or designated contract market, failing to register as a futures commission merchant, and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program.

Additionally, ZeroX was charged alongside the two for illegally offering leveraged and margined retail commodity transactions in digital assets. Consequently, Opyn, ZeroEx, and Deridex have been ordered to pay civil monetary penalties of $250,000, $200,000, and $100,000, respectively, and to cease and desist from violating the Commodity Exchange Act and CFTC regulations.

Speaking on the charges, CFTC Director of Enforcement Ian McGinley said the use of DeFi protocols doesn’t exempt unlawful transactions from penalties.

“Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts,” CFTC Director of Enforcement Ian McGinley said. They do not,” he said.

“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,” he added.

About the Protocols

Opyn, ZeroEx, and Deridex all have their roots in Delaware. Opyn, a company based in California, is a blockchain-based digital asset protocol that offers trading of a digital asset derivative token called oSQTH. According to the CFTC, the value of the token tracks the price of ether squared relative to the USDC stablecoin, making them commodity transactions.

“The order finds that oSQTH tokens are swaps and leveraged or margined retail commodity transactions and therefore can be offered to retail users only on a registered exchange in accordance with the CEA and CFTC regulations,” the regulator said. “Opyn unlawfully operated a facility for the trading or processing of swaps without registering as a SEF.”

Similarly, Deridex is a Delaware company based in North Carolina, that offers trading of “perpetual contracts”. According to the CFTC, they “were leveraged derivative positions that provided for the exchange of one or more payments based on the relative value of STABL2 and another virtual currency.”

ZeroEx, offers a blockchain-based digital asset protocol and front-end application called Matcha that allows users to trade digital assets through use of various blockchains, according to the CFTC.

Cooperating with the CFTC

The three companies have cooperated with the CFTC so far in its investigation, making the process smoother.

“The CFTC recognizes each respondents’ substantial cooperation with the Division of Enforcement’s investigation of this matter in the form of a reduced civil monetary penalty,” the regulator said.

Also, Matcha said its developer, 0x, is working towards bringing adoption of web3, and appreciates the regulator bringing the defaulting tokens to its notice.

“0x, the developer of DEX aggregator Matcha, recently cooperated with the CFTC to resolve an inquiry regarding tokens constituting less than 0.1% of Matcha’s trading volume since inception,” Matcha said..

“At 0x, strategic decisions are made with input from outside legal counsel. In this case, we are implementing additional processes after constructive dialogue with the regulatory agency,” it added.

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