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CFTC Charges Three Defi Projects for Illegal Operations

The Commodity Futures Trading Commission (CFTC) has taken a firm stance in the decentralized finance (DeFi) sector, announcing charges against three DeFi projects, Opyn, ZeroEx and Deridex, for unauthorized trading activities.

In a statement released on Friday, September 7, the CFTC outlined the charges against these companies and their subsequent settlements. 

Opyn, a company headquartered in California, was charged with failure to register as a swap execution facility (SEF), neglecting to register as a futures commission merchant (FCM), and not implementing a customer identification program as required by the Bank Secrecy Act compliance program. As per the statement, these violations occurred while Opyn operated the Opyn Protocol and enabled trading of oSQTH tokens for U.S. customers.

ZeroEx, developer of the 0x Protocol, was charged for allegedly allowing the trading of leveraged tokens on its Matcha platform. These tokens, offering 2:1 leveraged exposure to digital assets, were found to be leveraged or margined retail commodity transactions. As pet the agency, these tokens could only be legally offered on a registered exchange.

On the other hand, Deridex the project behind the Deridex Protocol, was charged with offering trading of perpetual contracts, which are leveraged derivative positions. Deridex also operated without registering as an SEF, engaged in activities reserved for registered FCMs, and failed to adopt a required customer identification program. Deridex was equally blamed for not excluding U.S. users from accessing their protocol.

As part of the settlement, the agency noted that Opyn, ZeroEx, and Deridex agreed to pay civil monetary penalties of $250,000, $200,000, and $100,000, respectively. Additionally, they were required to cease-and-desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

Commenting on the development,  Director of Enforcement at the CFTC, Ian McGinley, emphasized the importance of enforcing regulations in the DeFi space, stating;

The DeFi space may be novel, complex, and evolving, but the Division of Enforcement will continue to evolve with it and aggressively pursue those who operate unregistered platforms that allow U.S. persons to trade digital asset derivatives.” 

This enforcement action follows a series of charges filed by the CFTC against prominent figures in the crypto sector. In late March, the agency instituted charges against Binance, its CEO Changpeng Zhao, and former Chief Compliance Officer Samuel Lim, accusing them of violating the Commodity Exchange Act by operating an “illegal” exchange alongside a purportedly “sham” compliance program. 

The CFTC, tasked with “establishing regulations and overseeing market activities and participants,” has significantly escalated its efforts in the past year by bringing charges against DeFi protocols individuals and companies allegedly involved in fraudulent cryptocurrency trading schemes.

However, while the agency strives to safeguard market participants from unscrupulous actors, its recent enforcement action has garnered attention. In a statement following Friday’s action, CFTC Commissioner Summer Mersinger expressed her dissent, stating that she is concerned about the agency’s inclination towards enforcement actions involving decentralized finance (DeFi) protocols rather than engaging in public discourse.

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