The U.S. Commodity Futures Trading Commission (CFTC) has reached a settlement with the companies responsible for 0x (ZRX) and two other decentralized finance (DeFi) protocols. The settlement resolves charges of offering unregistered digital asset derivatives without proper registration and supervision. This news highlights the increasing regulatory scrutiny faced by DeFi projects and their necessity to comply with regulatory requirements.
Title 1: U.S. Regulators Crack Down on DeFi Companies, Imposing Significant Penalties
The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) continue their aggressive enforcement actions against cryptocurrency actors. In a recent press release dated Sept. 7, the CFTC announced settlements with multiple decentralized finance (DeFi) companies. These actions serve as a stark reminder that unlawful transactions facilitated by smart contracts remain illegal.
One of the key targets of the CFTC was ZeroEx Inc., known for developing the 0x Protocol. In addition to 0x Protocol, ZeroEx also operated a frontend named Matcha, which facilitated trading of third-party tokens providing leveraged exposure to major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). However, the CFTC clarified that these leveraged tokens are commodities and should only be offered on registered exchanges.
While 0x Protocol was once considered a leading decentralized exchange platform, its popularity has waned in recent years as competitors like Uniswap gained dominance. Despite its declining market ranking, the CFTC’s action against 0x Protocol holds significance as it targets a former top contender in the DeFi space.
Opyn, another decentralized platform that offered investments in Ethereum and stablecoins, also faced regulatory scrutiny from the CFTC. The CFTC insisted that Opyn’s oSQTH tokens are commodities and can only be traded on registered exchanges. These tokens derive their value from a squared ETH-to-USDC index operated by the company.
The third platform targeted by the CFTC was Deridex, a now-defunct trading platform built on Algorand blockchain. The CFTC identified the perpetual contracts offered by Deridex, based on the relative value of STABL2 token and another asset, as commodities.
Apart from the specific violations, all three platforms faced additional charges. The CFTC accused Deridex and Opyn of various failures to register and comply with customer identification programs under the Bank Secrecy Act. ZeroEx, however, was not mentioned in relation to these charges.
The CFTC charged all three companies with the illegal offering of leveraged and margined retail commodity transactions in digital assets. As a result, each platform is required to cease and desist from any further violations of the relevant regulations.
To settle the charges, the CFTC imposed different monetary penalties on each company. Opyn must pay $250,000, ZeroEx must pay $200,000, and Deridex must pay $100,000. These settlements were reached simultaneously with the filing of charges.
These actions represent just a fraction of the CFTC’s increasing focus on the crypto industry. In recent times, the agency has pursued cases against fraudulent entities like Mirror Trading International and taken action against individual pool operators. Furthermore, major crypto companies such as Binance, FTX, Tether, and BitMEX have also faced the regulatory scrutiny of the CFTC.
Title 2: U.S. Regulators Come Down Hard on DeFi Companies for Illegal Activities
The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) show no signs of easing their grip on the cryptocurrency industry as they continue to crack down on illegal activities. In a press release dated Sept. 7, the CFTC announced settlements with multiple decentralized finance (DeFi) companies, reiterating that smart contracts do not make unlawful transactions lawful.
One of the prominent DeFi entities targeted by the CFTC was ZeroEx Inc., recognized for its creation of the 0x Protocol. The agency highlighted ZeroEx’s frontend platform, Matcha, which allowed users to trade third-party tokens providing leveraged exposure to popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). However, the CFTC emphasized that these leveraged tokens are commodities and should only be offered on registered exchanges, not through DeFi platforms.
Although 0x Protocol previously held a promising position in the Ethereum-based decentralized exchange sector, its former dominance has been eclipsed by platforms like Uniswap. Notably, the CFTC’s actions against 0x Protocol hold significance as they target one of the former leading contenders in the DeFi landscape.
Opyn, another DeFi platform offering investments in Ethereum and stablecoins, also faced regulatory consequences from the CFTC. The agency asserted that Opyn’s oSQTH tokens, which derive their value from a squared ETH-to-USDC index, are commodities and must be traded on registered exchanges.
The CFTC’s enforcement efforts extended to Deridex, a now-defunct trading platform built on the Algorand blockchain. The agency classified Deridex’s perpetual contracts, based on the relative value of the STABL2 token and another asset, as commodities.
Aside from specific violations, Deridex and Opyn were charged with failure to register and comply with customer identification programs, as required by the Bank Secrecy Act. Interestingly, ZeroEx was not implicated in these charges.
In addition to the charges mentioned, all three platforms faced accusations of illegal leveraged and margined retail commodity transactions in digital assets. As part of the settlements, each company is required to cease and desist from violating relevant regulations.
To resolve the charges, the CFTC imposed distinct monetary penalties on each platform. Opyn has been ordered to pay $250,000, ZeroEx $200,000, and Deridex $100,000. These settlements were reached concurrently with the filing of charges.
These actions against DeFi companies represent only a fraction of the CFTC’s extensive efforts to regulate the crypto industry. Their recent enforcement actions have spanned from fraudulent entities like Mirror Trading International to major players such as Binance, FTX, Tether, and BitMEX. It is evident that the CFTC remains committed to maintaining a robust regulatory framework for the rapidly evolving cryptocurrency landscape.