Shalini Nagarajan

The head of the CFTC has reaffirmed opinions on the securities status of major cryptocurrencies, including ether, that outright clash with SEC chief Gary Gensler’s interpretation of securities law.



At a Senate Agriculture Committee <a href="https://www.agriculture.senate.gov/hearings/oversight-of-the-commodity-futures-trading-commission-03-08-2023" target="_blank" rel="noreferrer noopener">hearing</a> Wednesday, CFTC Chairman Rostin Behnam made the case that both <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ether</a> and stablecoins such as tether (<a href="https://blockworks.co/tag/usdt" target="_blank" rel="noreferrer noopener">USDT</a>) could be considered commodities.



Meanwhile, Gensler has claimed <a href="https://twitter.com/AlexanderGrieve/status/1629816811360337920" target="_blank" rel="noreferrer noopener">every crypto asset, besides bitcoin</a>, is likely a security. He&#8217;s even argued that Ethereum’s move to proof-of-stake, which allows holders to earn income passively through staking, could <a href="https://www.wsj.com/articles/ethers-new-staking-model-could-draw-sec-attention-11663266224" target="_blank" rel="noreferrer noopener">transform</a> it into a security (if it wasn’t already one).



Here’s what Behnam, the top commodities watchdog, had to say this week:



<h2>CFTC already greenlit ether futures</h2>



Behnam was asked what he thinks of Gensler’s suggestion that all digital assets except bitcoin are securities.



“I’ve made the argument that ether is a commodity,” he said. “It’s been listed on CFTC exchanges for quite some time. And for that reason, it creates a very direct jurisdictional hook for us to police, obviously, the derivatives market but also the underlying market as well.”



Fortune <a href="https://fortune.com/crypto/2022/11/30/inaction-is-paralysis-cftc-chair-rostin-behnam-calls-for-regulation-in-the-wake-of-ftxs-collapse/" target="_blank" rel="noreferrer noopener">reported</a> Behnam saying at an invite-only Princeton University event in November that bitcoin should be the only cryptocurrency viewed as a commodity. 



However, his latest statements suggest that view could have been softened.&nbsp;



“We would not have allowed the product – in this case the ether futures product – to be listed on a CFTC exchange if we did not feel strongly that it was a commodity asset because we have litigation risk, we have agency credibility risk if we do something like that without serious legal defense or defenses to support our argument that that asset is a commodity.”



In a December lawsuit against FTX, the CFTC <a href="https://twitter.com/NorthRockLP/status/1602743320995766272" target="_blank" rel="noreferrer noopener">referred</a> to bitcoin, ether and tether as commodities under US law. 



<h2>CFTC considers Tether a commodity</h2>



The hearing was called to discuss the aftermath of customer losses caused by FTX’s scandal, a result of calls for increased federal oversight of the crypto industry.



Behnam aside, speakers present at the hearing included Sen. Debbie Stabenow and Sen. John Boozman, who are both major backers of the <a href="https://www.agriculture.senate.gov/imo/media/doc/crypto_one-pager1.pdf" target="_blank" rel="noreferrer noopener">Digital Commodities Consumer Protection Act</a>, which seeks to regulate crypto trading. 



Behnam suggested that stablecoins are commodities in his view, although “colleagues might have a different opinion.



“Notwithstanding a regulatory framework around stablecoins, they’re going to be commodities in my view,” Behnman said.



He added: “Examining the circumstances around the Tether case, it was clear to our enforcement team and the Commission that the Tether stablecoin was a commodity, and we needed to move forward and swiftly to police that market and that company.”



For what it&#8217;s worth, Gensler has been indefinite about his take on stablecoins, once <a href="https://www.cnbc.com/video/2021/09/14/sec-chair-gary-gensler-says-stablecoins-may-well-be-securities.html" target="_blank" rel="noreferrer noopener">saying</a> in late 2021 that they “may well be securities.” 



This suggests they should come under the purview of the SEC (Paxos <a href="https://blockworks.co/news/binance-stablecoin-security-paxos-sec-wells" target="_blank" rel="noreferrer noopener">received</a> an SEC Wells notice last month over Binance USD). 



But then again, last October, Gensler <a href="https://www.reuters.com/technology/secs-gensler-says-cftc-authority-over-stablecoins-should-be-bolstered-2022-10-14/#:~:text=The%20vast%20majority%20of%20cryptocurrencies,handful%20are%20not%2C%20Gensler%20said." target="_blank" rel="noreferrer noopener">said</a> Congress should give the CFTC more power to oversee stablecoins.



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Ether and Stablecoins Could be Commodities: CFTC Chair 

Sebastian Sinclair

<div id="highlights-block_632d6c4e78003" class="highlights">
 <ul>
 <li>bZeroX’s protocol facilitated unlawful margined and leveraged retail commodity transactions on its platform between 2019 and 2021, the CFTC said Thursday</li>
 <li>Its DAO was operating without having first registered as a futures commission merchant, the regulator said</li>
 </ul>
 
</div>



The Commodity and Futures Trading Commission (CFTC) has filed and settled charges against a decentralized autonomous and its founders for facilitating margined and leveraged retail commodity transactions, which they say operated outside the law for years.



The bZeroX DAO deployed, marketed and made solicitations to customers under a protocol of the same name to undertake transactions considered unlawful because those transactions did not occur on a designated market contract, the CFTC said in a <a href="https://www.cftc.gov/PressRoom/PressReleases/8590-22" target="_blank" rel="noreferrer noopener">statement</a> Thursday.



According to the regulator, bZeroX, as well as founders Tom Bean and Kyle Kistner, have been ordered to pay $250,000 for their involvement.



The bZeroX platform was subjected to a <a href="https://bzx.network/blog/prelminary-post-mortem" target="_blank" rel="noreferrer noopener">phishing attack</a>, in November 2021, which extracted stablecoins and DeFi tokens and <a href="https://cms.blockworks.co/hacked-dao-faces-lawsuit-as-users-try-to-recoup-stolen-funds/" target="_blank" rel="noreferrer noopener">prompted a class action lawsuit</a>, though the CFTC is not considering that as part of its filing.



Acting as a pseudo trading marketplace from July 2019 to August 2021, the CFTC said the DAO’s protocol allowed users to take leveraged positions but that bZeroX was operating without having first registered as a futures commission merchant.&nbsp;



The DAO and its founder also failed to adopt know-your-customer procedures under the Bank Secrecy Act, the CFTC said. It&#8217;s believed to be the first such case the regulator has brought against a DAO.



Ooki DAO — a successor to bZeroX — also faces similar charges, the CFTC said. Ooki is said to be operating the same software as bZeroX. As such, the CFTC is seeking restitution, disgorgement, civil monetary penalties, trading and registration bans as well as injunctions against further violations.



While the case is unique based on the involvement of what is perceived as a decentralized organization, the regulator’s move aligns with sentiments laid out last week by CFTC Chair <a href="https://cms.blockworks.co/cftc-preparing-to-oversee-crypto-behnam-tells-senators/" target="_blank" rel="noreferrer noopener">Rostin Behnam</a>.



Behnam told the Senate Agriculture Committee his agency has already begun preparations to take the reins as the primary regulator for the crypto industry.&nbsp;



While the regulator attempts to position itself as the main authority over the new asset class, the SEC has been vying for similar oversight.



Earlier this month, SEC chair Gary Gensler said the CFTC can have authority over bitcoin and other unspecified “non-security tokens,” the securities regulator in turn, it would take charge over all other cryptos. 



The decision ultimately <a href="https://cms.blockworks.co/bitcoin-ether-to-be-regulated-as-commodities-by-cftc-per-new-senate-bill/" target="_blank" rel="noreferrer noopener">rests with</a> Congress, which will have to decide whether either regulator is deemed fit enough to police the industry or whether the creation of an entirely new oversight body is preferred.



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