The crypto exchange giant Coinbase wants to launch crypto derivatives products, but claims that it will do so in a “robust and holistic” manner, as part of a plan to help form a “regulated” derivatives market – but American lawmakers want tighter regulation in the sector.
In a blog post, Coinbase wrote that it had agreed to buy FairX, which it noted was a Commodity Futures Trading Commission (CFTC)-regulated derivatives exchange. The deal is subject to “customary closing conditions and reviews,” and the exchange heavyweight said the deal should be complete by the end of the “first fiscal quarter.” It called the move its “next step toward creating the robust and holistic trading environment investors are seeking.”
It added that it now plans to “bring regulated crypto derivatives to market,” “initially” making use of FairX’s “existing partner ecosystem.” Coinbase added that it wants to make use of FairX’s infrastructure “to offer crypto derivatives to all Coinbase customers” in the United States.
“A healthy, well-regulated derivatives market,” Coinbase explained, “will be critical” for crypto’s “long-term success.”
But the CFTC may well be called into action before the deal is complete, if certain politicians get their way.
The CFTC’s head has received an open letter penned by four leading Democrat and Republican Senators and Congress members, calling for action. The authors are Senators Debbie Stabenow and John Boozman from the Senate Committee on Agriculture, Nutrition and Forestry; and David Scott and Glenn Thompson of the House Committee on Agriculture.
The lawmakers opined that the regulator has a “critical role to play” in crypto regulation, and made mention of crypto derivatives – and their concerns in this regard.
“We […] are concerned about any DeFi [decentralized finance] protocols offering derivatives contracts on unregistered exchanges – the subject of a recent CFTC enforcement action.”
They called on the CFTC’s new chief, Robin Behnam, to answer the following question:
“Within the United States, what is the estimated scope of retail participation in digital asset markets? How does this compare to the level of retail participation in derivatives markets for other commodities?”
Furthermore, the group of lawmakers asked for closer scrutiny of the markets in areas where the CFTC can intervene.
They wrote that both bitcoin (BTC) and ethereum (ETH) are commodities, meaning they would be subject to CFTC – rather than Securities and Exchange Commission (SEC) – supervision.
And the group noted that instances of fraud and market manipulation could escalate in the DeFi sector if it was allowed to grow unchecked.
“There are still questions about who is responsible for monitoring DeFi markets for fraud and manipulation, safeguarding customer funds and ensuring parties meet their obligations to one another.”
In a familiar-sounding refrain, the four lawmakers wrote:
“While some of these technologies have the potential to modernize the financial system, it is imperative that customers are protected from fraud and abuse and that these markets are fair and transparent.”
The group concluded by demanding that Behnam explain “how the CFTC has collaborated with other federal financial regulators regarding digital assets,” and asked if he foresaw “any shortfalls in the Commission’s authorities to protect customers and ensure market integrity.”
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