CFTC Cracks Down on DeFi! Opyn, ZeroEx, and Deridex Protocols Accused, Internal Dissent Arises?

The U.S. Commodity Futures Trading Commission (CFTC) announced yesterday that it has taken enforcement action against three DeFi protocols for allegedly offering various derivative trading products to the general public without registering. Opyn, ZeroEx, and Deridex have been fined civil penalties ranging from $100,000 to $250,000 each and have been ordered to cease their violations.

CFTC Accuses Three DeFi Protocols of Violations and Imposes Fines

Today @CFTC issued orders against operators of three DeFi protocols for offering illegal digital asset derivatives trading. Learn more: https://t.co/7YDbgC1Xl2

— CFTC (@CFTC) September 7, 2023

Opyn：

Opyn, a DeFi investment strategy platform that offers trading of crypto asset derivatives. Its Total Value Locked (TVL) once reached $350 million but now stands at around $22 million.

CFTC defined its involvement in leverage and margin services. Opyn failed to register as a Swap Execution Facility (SEF) or Futures Commission Merchant (FCM) as required by law, violating the U.S. Commodity Exchange Act (CEA) which mandates derivative trading services to be executed on registered exchanges.

Additionally, CFTC found Opyn did not implement user identity verification Know Your Customer (KYC) processes, violating banking secrecy laws. This may extend to other DeFi protocols, but the concept of DeFi and KYC are fundamentally contradictory.

CFTC imposed a $250,000 civil penalty on Opyn.

ZeroEx：

ZeroEx is a decentralized exchange (DEX) on Ethereum that provides trading services for perpetual contracts. Its daily trading volume once reached $120 million last year.

It faced similar charges to Opyn, being unregistered as a SEF or FCM and lacking compliance measures.

As a result, CFTC fined ZeroEx $200,000.

Deridex：

Deridex is a crypto derivatives platform on the Algorand network, involving leveraged token trading. It was unregistered and did not comply with the CEA.

CFTC fined Deridex $100,000.

Reportedly, its Twitter and protocol were closed in February, with TVL reaching $150,000 previously.

CFTC Commissioner Dissents Enforcement Action

Notably, CFTC Commissioner Summer Mersinger released a statement that appears to diverge from the majority of the Commission.

In these cases, the orders did not indicate misappropriation of user funds or harm to market participants by these DeFi protocols; yet, enforcement actions were taken.

Expressing concern, she stated, "I am concerned that the Commission is moving toward enforcement when we should be engaging with the public and gaining a better understanding, as enforcement is not always the primary and sole means of the CFTC."

CFTC Maintains Firm Regulatory Stance

Previously, CFTC Chairman affirmed that regardless of how DEX operates, they fall under its oversight and will act against fraud or violations:

Even if decentralized crypto exchanges are based on automated protocols and pure code, they are still subject to regulation by the CFTC or the U.S. Securities and Exchange Commission (SEC).

Simultaneously, CFTC's lawsuit against crypto firm bZeroX and its protocol manager Ooki DAO set a precedent in June, reinforcing its enforcement stance and arguments.

In other words, whether DAOs or DEXs, they are liable for criminal and civil violations within, and decentralization cannot serve as a shield.