Senate Hearing on Digital Assets May Test Role of CFTC and DeFi

Today, February 9, the U.S. Senate Committee on Agriculture, Nutrition and Forestry is holding a hearing on digital assets where witness experts will likely discuss the risks of cryptocurrencies and other digital assets, the need for new regulation and the role of the Commodity Futures Tradition Commission (CFTC) in supervising these assets.

The first panel will only have one witness, the Chairman of the CFTC, Rostin Behnam. This is not the first time that the Senate committee on Agriculture hears Behnam, as the CFTC is the agency regulating commodity markets like wheat, corn, oil and gold — digital assets may also fall under this category, especially for some cryptocurrencies like bitcoin. During his nomination hearing, Behnam requested to this committee to consider expanding the CFTC´s regulatory authority to cover digital assets, alleging that we have only seen “the tip of the iceberg” in regard to these assets.

Leaders of the Senate Committee on Agriculture sent a letter to Behnam in January after his nomination asking him a series of questions about the size and scope of crypto markets, crypto crime and the CFTC´s authority to “protect consumers and ensure market integrity.”

The letter highlights that the CFTC has already considered certain digital assets to be commodities, and the committee even suggests that the two largest digital assets — bitcoin and ether — are commodities, which it isn´t a settled matter. The Securities and Exchange Commission (SEC) has accepted that bitcoin may be a commodity, but it has been far less clear whether ether is also a commodity. In fact, this point will likely be discussed in court in its current litigation with Ripple and whether the digital coin XRP should be registered or not as a security.

Additionally, the Senate Committee seems concerned about decentralized financial (DeFi) protocols, where there is no intermediary or centralized system through which transactions are processed. “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. We also are concerned about any DeFi protocols offering derivatives contracts on unregistered exchanges — the subject of a recent CFTC enforcement action,” reads the letter issued by the Senate committee.

The first part of the hearing today may include some of the questions the Senate asked Behnam in the letter about the risks of DeFi protocols and what additional powers the CFTC may need to properly supervise these markets and protect consumers. But it will probably continue with the debate of what digital assets are commodities and what are securities.

The second part of the hearing includes witness testimonies from Sandra Ro, CEO of the non-profit association Global Blockchain Business Council, Sam Bankman-Fried, CEO of the cryptocurrency derivate exchange FTX, who already participated as witness before the Congress in December, Perianne Boring, CEO of the Chamber of Digital Commerce and Kevin Werbach, professor at Wharton School, University of Pennsylvania.

The senate committee may ask similar questions to these other experts about the role of the CFTC to regulate crypto assets. Bankman-Fried has indicated in previous interviews that he would prefer to see the CFTC take on a bigger role. “We´ve found the CFTC and the House and Senate Agriculture to be helpful and constructive,” Bankman-Fried said. CFTC’s friendly approach to the crypto community is in stark contrast with the more adversarial approach taken by the SEC, given the number of enforcement actions and, according to experts interviewed by PYMNTS, the lack of engagement at the high level to discuss certain aspects of the regulation.

Read More: SEC Crypto Enforcement Approach May Not Be Enough in the Long Term

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