Mr. Dan Berkowitz, Commissioner of the US Commodity Futures Trading Commission (CTFC) touched on the market for decentralized finance and its derivatives as a bad idea.

DeFi stands for Decentralized Finance Market, which is a set of crypto-based services and products that mirror many of the products already available in traditional finance, but with a much smaller number of intermediaries and third parties.

He said Berkowitz in a keynote speech yesterday:

I think unlicensed DeFi markets for derivative instruments are a bad idea, and I also don’t see how they are legal under the Commodity Exchange Act.

The CFTC commissioner argued vigorously over what he saw as a lack of protection within the DeFi space compared to the broader US financial system, which he described as having the most effective and efficient risk management and capital formation markets in the world.

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Berkowitz added that one of the main reasons behind the success of the US financial system is the strong legal protection investors have when investing their money in US markets, and most importantly, doing so through brokers.

The world of DeFi, according to Berkowitz, is just the opposite.

Unlicensed DeFi Marketplace:

According to Berkowitz, there is a long list of problems that the current DeFi system does not adequately address.

He added:

There is no broker to monitor the markets for fraud and manipulation, prevent money laundering, protect deposited funds, ensure counterparty performance, or keep clients safe when operations fail.

DeFi is a Hobbs market where everyone is searching for themselves.

The term “Hobbes” refers to “Thomas Hobbes,” a seventeenth-century political thinker who saw natural man as a human being driven by selfishness and intense competition.

The only way to build a community around such a “Hobbs” object was through the implementation of a large central supervisor.

In fact, many proponents of DeFi disagree with Berkowitz’s statement.

Cryptocurrency enthusiasts have long advocated removing costly intermediaries to allow individuals to trade on a peer-to-peer basis.

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However, Berkowitz’s comments may not find support either in the world of conventional finance.

Hester Pierce, one of the five SEC commissioners, told the Financial Times that she was concerned about US regulators pushing to control the crypto markets.

She told Pierce:

I’m concerned that the regulator’s initial reaction is always to say:

I want to grab this and make it like the markets I already run.

I’m not sure that would be great for innovation.

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