First interview after the BitMEX crackdown, CFTC Chairman discusses Ethereum transition and regulatory stance on DeFi

After the leading cryptocurrency futures exchange BitMEX faced severe allegations, including violations of multiple regulations and the arrest of its co-founder Samuel Reed, CoinDesk interviewed CFTC Chairman Heath Tarbert. In the interview, they delved into topics such as Ethereum, DeFi, and who might be the "next BitMEX."

Impressive Ethereum

Heath Tarbert, well-known for his familiarity with cryptocurrencies and blockchain, is also a supporter of cryptocurrency. Since taking office in 2019, he has been working to introduce Ethereum derivative contracts to the United States. In a recent interview, he even expressed his belief that blockchain will become an important part of the financial system.

In addition to praising Ethereum in the interview, discussions were held on the upcoming Ethereum 2.0 transition, the current PoW mining mechanism, high miner fees, commodity attributes, and even his views on DeFi projects such as Uniswap and Yearn.Finance. Regarding whether the transition of Ethereum will be classified as a security, Tarbert stated:

I don't want to say it will definitely be, but the world's second-largest blockchain project may be classified as a security rather than a commodity after transitioning to a proof-of-stake mechanism. However, as time goes on, if Ethereum becomes more decentralized and operates more efficiently, the possibility of it being classified as a commodity will also increase.

In fact, Tarbert issued a warning in November last year, stating that Ethereum will use a proof-of-stake mechanism, allowing users to continue to profit from the network, which may not pass the Howey Test for determining whether it is a security and could potentially be considered a security. However, the key may still depend on the decision of the U.S. Securities and Exchange Commission (SEC). Tarbert pointed out:

We usually follow the views of the SEC. If the U.S. Securities and Exchange Commission says "this is not a security," then usually we will confidently emphasize: it is a commodity.

Views on the DeFi Sector

Later, Tarbert talked about the hot DeFi sector this year. The complexity of DeFi products has evidently brought new challenges to regulatory agencies, but he remains optimistic, stating:

The innovation in the DeFi sector is undoubtedly remarkable and revolutionary technology. Ultimately, it may detach from financial institutions and traditional investors to form its own unique sector. Its financial system is not concentrated in specific large institutions, hence it may have the potential to reduce systemic risks.

When asked about the recent buzz surrounding the Uniswap governance token UNI airdrop, Tarbert believes that this behavior still has some characteristics of a security. However, because it was distributed to users for free, it is difficult to determine what economic loss it may cause to users, and he emphasized once again that this is an area where the SEC can intervene.

Regarding the temporarily popular Yearn.Finance, Tarbert pointed out its unique "fair distribution mechanism":

Projects like Yearn.Finance did not reserve any tokens for the project team, which is very challenging for the project team. The so-called "fair distribution" makes many founders hesitant, but even if this is achieved, there is still the possibility of market manipulation, which regulators must evaluate.

BitMEX Incident

On October 2nd, the CFTC accused BitMEX of operating illegally without registration and violating anti-money laundering laws. CEO Arthur Hayes, co-founder Ben Delo, and business development executive Greg Dwyer were indicted, while another co-founder, Samuel Reed, was arrested. Tarbert commented on this:

I want the United States to be at the forefront in the digital asset field. We hope to create an environment where exchanges can grow in the United States, come to receive approval from regulatory agencies like the CFTC, and benefit from the system, rather than being an offshore exchange that disregards U.S. laws.

When asked if the CFTC is targeting other non-compliant trading platforms, Tarbert jokingly remarked, "I would say maybe."