Coinbase CEO: DeFi Projects Should Take Regulators To Court To ‘Establish Precedent’ - Decrypt

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Coinbase CEO Brian Armstrong has taken to Twitter to urge DeFi projects to “establish precedent” by going to court with the Commodity Futures Trading Commission.

In a post on the social media platform, now known as X, Armstrong argued that the regulator, “should not be creating enforcement actions against decentralized finance (DeFi) protocols,” since they are not financial service businesses.

Armstrong added that, “it’s highly unlikely the Commodity Exchange Act even applies to them.”

He hoped that DeFi protocols take cases filed by U.S. regulators to court to establish a precedent, noting that, “The courts have proven to be very willing to uphold rule of law.”

The CFTC should not be creating enforcement actions against decentralized (DeFi) protocols. These are not financial service businesses, and it’s highly unlikely the Commodity Exchange Act even applies to them.

My hope is these DeFi protocols take these cases to court to…

— Brian Armstrong 🛡️ (@brian_armstrong) September 13, 2023

Decrypt has approached Coinbase for comment and will update this article should they respond.

DeFi goes to court

Regulators in the U.S. have ramped up enforcement actions directed at crypto businesses in recent months.

Last week, the CFTC filed and settled charges against three decentralized exchanges (DEXs), Opyn, ZeroEx (0x) and Deridex, imposing fines and issuing “cease and desist” orders.

The DeFi platforms were accused of “illegally offering leveraged and margined retail commodity transactions in digital assets,” among other charges.

They have been ordered to pay civil monetary penalties of $250,000, $200,000, and $100,000, respectively.

Last April, the U.S. Securities and Exchange Commission appeared to bring DeFi under its regulatory umbrella, when it reconsidered its definition of an exchange. The proposal “reiterated the applicability of existing rules to platforms that trade crypto asset securities, including so-called “DeFi” systems,” integrating DeFi into the broader definition of regulated exchanges.

Armstrong’s appeal to fight cases in the courts rather than settling suggests an alternative path forward for DeFi.

A recent ruling by District Judge Katherine Polk Failla cleared Uniswap of allegations related to scam tokens.

Judge Failla elucidated the differences between decentralized platforms powered by smart contracts, such as Uniswap, with centralized exchanges such as Kraken and Coinbase. The U.S. Securities and Exchange Commission (SEC) has assertively probed prominent exchanges including Coinbase and Binance.

Failla’s judgment indicates that while centralized platforms might be liable for the wrongdoings of token issuers, the inherent openness of decentralized platforms offers them a degree of protection against such legal predicaments.