The CFTC Technology Advisory Committee attended a briefing on DeFi and discussed holding developers legally liable for protocol misuse.
The Commodity Futures Trading Commission (CFTC) is trying to understand and understand how the decentralized finance (DeFi) industry works. This week, the CFTC’s Technology Advisory Committee heard a presentation by Law Professor Aaron Wright and Attorney Gary DeWaal entitled “The Growth and Regulatory Challenges of Decentralized Finance.”
For the most part, the presentation was a briefing on the work of decentralized platforms, which are actively developing during this year. Wright summarized the benefits of DeFi as the potential to deliver services at a lower cost to more people by automating a number of processes involved. He also noted that software tools can provide more flexibility in general.
“Another interesting benefit of decentralized finance projects is that they can be assembled and interacted with,” Wright said. “Developers often describe them as financial blocks, similar to Lego.”
Regarding compliance, Wright noted that DeFi developers usually don’t think about the legal side of things:
“These contracts are not subject to the law. This does not mean that they are illegal. This means that they are developed at a technical level, not necessarily with regulatory requirements. “
Among the potential risks of DeFi platforms, speakers pointed to high technological barriers to entry into the industry. In addition, the ongoing problem of minimum registration requirements or lack thereof poses the threat of violating KYC principles and combating money laundering.
DeVaal answered the question of who the authorities can hold accountable if the DeFi platform is operating illegally. There have been many speculations that more lawsuits will subsequently be filed against software developers. DeVaal noted that this is a serious legal barrier.
“Typically, in the United States, software development is a First Amendment protected activity,” DeVaal said. “There are many uses for DeFi. But the First Amendment is not a universal criterion. “
Secondary liability can threaten a wide range of people using DeFi protocols, lawyers say. Among the possible solutions, Wright cited discussions on a potential safe harbor proposed by the SEC and stated:
“Safe Harbor can ensure responsible development to protect consumer interests without limiting innovation.”
Recall that at the beginning of this year, SEC Commissioner Hester Peirce proposed a three-year regulatory “vacation” for cryptocurrency startups.