CFTC’s Regulatory Action is not just Bad for Centralized Exchanges but also for DeFi Platforms

The Commodity Futures Trading Commission (CFTC) has charged centralized exchange BitMEX as its products have not complied with CFTC. Some members in the crypto space are saying that regulations can be applied to decentralized exchanges or decentralized finance (DeFi) platforms.

According to CFTC’s press release, it had filed “a civil enforcement action in the U.S. District Court for the Southern District of New York charging five entities and three individuals that own and operate the BitMEX trading platform with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering procedures.”

Bank Secrecy Act

The US Department of Justice (DOJ) has also charged four members in relation with BitMEX, including Arthur Hayes, Samuel Reed, Benjamin Delo, and Gregory Dwyer, for “violating the Bank Secrecy Act and conspiring to violate the Bank Secrecy Act, by wilfully failing to establish, implement, and maintain an adequate anti-money laundering (‘AML’) program” at BitMEX.” The maximum penalty in the Bank Secrecy Act is five years.

Prominent crypto investor Adam Cochran says that the two bad news in the crypto world would also affect decentralized exchange or decentralized finance (DeFi) platforms in the future. He explained,” So a lot of Crypto Twitter doesn’t understand why today’s news isn’t just bad for CeFi but is also bad for DeFi. It has a something to do with legal nuance and a little something called the “Bank Secrecy Act” (BSA).”

Peer-to-Peer Platforms are not Exempted from Laws

He further states that these laws and regulations are not just for centralized platforms but also for peer-to-peer platforms. He said:

“Now – many people presume there to be some sort of magical ‘peer-to-peer’ exemption that exists in these laws. I’m not sure where that myth comes from, it might be an oversimplification of understanding the SEC/CFTC limitations. But it doesn’t exist.”

In 2018, ICOs came on screen and got famous in the crypto space. But then, SEC put a heavyweight of regulations over ICOs and on those who were involved in it. The same thing can happen with DeFi which is not exempted from laws.

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