Coinbase, one of the world leaders in crypto services, is currently battling allegations of improper conduct in US courts. Legal representatives of the platform have denied any wrongdoing, even requesting that the case be dismissed.
Despite the allegations, Coinbase – and the platform’s CEO, Brian Armstrong – are generally viewed as a positive force in the market by institutional investors and even policymakers. As mentioned earlier cryptopotatoArmstrong met with House representatives to discuss upcoming legislation regarding cryptocurrencies.
However, Coinbase is a centralized platform and has not made any claims to be decentralized. That’s why Armstrong shared his thoughts on the legal issues that his decentralized peers may face.
CFTC’s behavior may have unintended consequences
According to Armstrong, the CFTC should not go after DeFi protocols, as their authority to do so is weak at best and actively hurting the industry’s prospects at worst.
The CFTC should not take enforcement actions against decentralized (DeFi) protocols. These are not financial services businesses, and it is highly unlikely that the Commodity Exchange Act would even apply to them.
My hope is that these DeFi protocols will take these cases to court…
– Brian Armstrong 🛡️ (@brian_armstrong) 13 September 2023
However, the CFTC takes a different view of the role of DeFi, as highlighted by CFTC Enforcement Division Director Ian McGilly following recent enforcement actions against three such protocols.
“Somewhere along the way, DeFi operators got the idea that illegal transactions become legitimate when facilitated by smart contracts. they do not. The DeFi space may be new, complex, and evolving, but the Department of Enforcement will continue to evolve with it and aggressively pursue those who operate unregistered platforms that allow US persons to trade digital asset derivatives.
This view is echoed by some in the Coinbase community, who have criticized Armstrong’s statement.
Does DeFi live up to its name?
X users immediately pointed to Armstrong’s statement that “DeFi protocols are not financial services”. is opposite to The Fi part of DeFi.
“”Decentralized (DeFi) protocols. “These are not financial services”? Haven’t you forgotten a word here? What does “fi” mean?
Other users pointed out that the mere possibility of taking a DeFi protocol to court proves that the said project is not decentralized in the least.
The fact that DeFi protocols can “even take these cases to court” shows how decentralized they really are.
– TylerBTC (@TylertBTC) 13 September 2023
If a project were truly decentralized, no individual or company would be able to be sued for alleged financial misconduct because the creation of the protocol itself is not illegal.
To stop the CFTC from going after DeFi, platforms targeted by regulators will have to prove that they are truly decentralized – without master keys, backdoors, etc.
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