Ooki DAO Update; Washington's Response to FTX
DEF Weekly Roundup - November 18, 2022
Ooki DAO Update
On Tuesday, the CFTC filed its response to the amicus briefs that were filed in response to the case it brought against Ooki DAO. In case you missed it, here is the link to ours.
In response to our argument, in which we claimed that the CFTC’s service on the Ooki DAO message board was improper, the CFTC made three main counterarguments:
The service method complies with applicable laws and provides the parties the CFTC intent to serve with actual notice.
The CFTC is not required to serve all individual members of Ooki DAO.
Ooki DAO is an unincorporated association for purposes of its motion for alternative service.
What does this mean?
We will be filing our response next week! Stay tuned.
Washington’s Response to FTX
The ripple effect FTX will have on the crypto ecosystem remains to be seen. However, lawmakers and regulators alike have already begun sharing their beliefs on what FTX’s demise means. Below, we highlight some of the responses.
On Wednesday, Chairwoman of the House Financial Services Committee, Congresswoman Maxine Waters (D-CA), and Ranking Member of the House Financial Services Committee, Congressman Patrick McHenry (R-NC), announced their intention to hold a hearing to investigate the collapse of FTX with the expectation to hear from Sam Bankman-Fried and other involved parties.
Congressman McHenry stated, “It’s essential that we hold bad actors accountable so responsible players can harness technology to build a more inclusive financial system.” Chairwoman Waters added, “I have led the effort in examining and investigating the digital assets marketplace, and know that we need legislative action to ensure that digital assets entities cannot operate in the shadows outside of robust federal oversight and clear rules of the road.”
Senator Pat Toomey (R-PA) tweeted last Thursday, “This episode underscores the need for a sensible regulatory regime that, among other things, ensures a centralized exchange segregates and safeguards customer assets…. the crypto sector has been operating with far too much ambiguity because (a) regulators refuse to give well-meaning actors clear guidance and (b) lawmakers refuse to act.” He later emphasized in a tweet the failure of Congress to “create regulatory guardrails,” driving away crypto development to foreign jurisdictions.
Senator Cynthia Lummis (R-WY) also tweeted in support of “comprehensive regulation in the digital asset space” and promoted her bill with Sen. Gillibrand (D-NY).
Senator Elizabeth Warren (D-MA), however, argued that crypto was “rife with fraud” and consisted of “smoke and mirrors.” She went so far as to call on the U.S. Securities and Exchange Commission (SEC) to “enforce the law and protect consumers and financial stability” on Twitter.
In a press conference, the White House Press Secretary made clear that they are monitoring the situation and broadly stated that cryptocurrencies must be regulated.
In an interview on Friday, SEC Chair Gary Gensler criticized crypto as being “highly centralized” and declared that the SEC will continue the “investigations and the enforcement path.” He also called on Congress not to “weaken the oversight of the securities markets” nor “undermine investor protection” for the sake of crypto innovation.
On Monday, Federal Reserve Vice Chair, Lael Brainard, also commented on the situation. She described the crypto ecosystem as “highly concentrated” and “highly interconnected,” and suggested that it needs to fall under the “regulatory perimeter,” arguing that it is no different than traditional finance.
When speaking to Bloomberg, U.S. Treasury Secretary, Janet Yellen, called on the federal government and Congress to “fill any regulatory gaps” and increase “oversight of cryptocurrency markets.”
On Wednesday, Commodity Futures Trading Commission (CFTC) Chair, Rostin Behnam, spoke with CNBC about a need for a regulatory framework in the U.S. and later suggested that the FTT was a security and that this was about ensuring transparency for investors.
What does this mean?
Where the demise of FTX will shift lawmakers and regulators is uncertain, though some responses have indicated that the line between CeFi and DeFi is not yet clearly defined. Senator Toomey, however, appropriately expressed the need for sensible regulation of centralized exchanges. Washington must not broadly impose regulation to include DeFi, as Sen. Toomey correctly pointed out, and must be tailored to the situation at hand.
A Quick Note from DEF:
We’ll be taking a break from our weekly updates next week for the Thanksgiving holiday. We will be back the following week and hope everyone is able to get some much needed rest!