Are US Crypto Regulators Rethinking Territory Through Enforcement Actions?

Are US Crypto Regulators Rethinking Territory Through Enforcement Actions?

As regulatory enforcement actions between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) unfold, the latter has subtly laid claim to Ethereum (ETH) and DAI, a stablecoin backed by other crypto tokens, such as digital products. How these two tokens are now asserted is the crux of what may be a jurisdictional battle between the two agencies over who can regulate cryptocurrencies.

With the CFTC’s latest action, the Ooki DAO complaint being issued today involving complex legal arguments regarding whether holders of government tokens who vote in a DAO are liable, quietly under the surface the complaint tags the tokens. on the Ooki exchange as commodities that gives the agency the necessary jurisdiction to bring the complaint. Similarly, the case SEC v. Wahi against people who were accused of insider trading of tokens on the Coinbase exchange saw nine tokens labeled as crypto-asset securities.

To be fair, these two regulators are facing White House instructions from the first crypto framework unveiled last week as part of Executive Order 14067. In the framework, the Biden Administration calls for, “…regulators like the Department of Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), in accordance with their mandates, to aggressively pursue investigations and enforcement actions against illegal practices in the digital asset space.”

However, the need for each agency to issue enforcement actions may also create the opportunity for each of the regulators to reframe their claim as to which part of the crypto ecosystem they will regulate in the future. While Ethereum (ETH) is already widely considered a digital asset commodity, DAI is definitely more interesting with a lot at stake for the MakerDAO Foundation that created the stablecoin as to whether DAI is a security or a commodity. DAI argues that its stablecoin is not “algorithmically backed”, but instead collateralized by other crypto tokens. This is unlike Tether, which uses US dollars and their equivalents to back stablecoins, which was also claimed as a digital product in a CFTC complaint last year against Tether.

What is critical now is that if these enforcement actions are the method by which the SEC and CFTC claim certain tokens as digital commodity tokens or security tokens, it would mean that some may interpret that the CFTC has just determined that DAI it is now a digital token. commodity and not a value.

In a recent Congressional Research Service (CRS) report titled ‘Stablecoins: Legal Issues and Regulatory Options’, SEC Chairman Gary Gensler was quoted as saying, “…that some stablecoins may qualify as” securities” under federal law – a designation that would subject issuers to registration and reporting requirements.” Specifically, the report highlighted how Gensler explained that the SEC would claim these stablecoins as securities if the token is part of a security contract. investment or if the stablecoin can represent “notes”.

Meanwhile, it still appears that neither the SEC nor the CFTC have provided guidance that would help clarify the landscape of whether digital tokens are securities and commodities, making the current business environment for the industry difficult and stressful to navigate. With just a week to go in the US government’s fiscal year, at a time when US regulators tend to issue enforcement actions before the end of the year, the pressure of whether a token project in particular could get caught up in the current regulation-by-application approach’, the industry is likely to be on the verge of any further complaints from any of the regulators.

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