Coinbase CEO’s Advice to DeFi Projects: Litigate Against Regulators to Establish Legal Precedent

Crypto News- Coinbase CEO Brian Armstrong has used Twitter to call on DeFi projects to set legal precedents by engaging in legal battles with the Commodity Futures Trading Commission (CFTC).

In a social media post on the platform now known as X, Armstrong argued that the regulator should refrain from initiating enforcement actions against decentralized finance (DeFi) protocols, as they do not operate as financial service businesses.

Coinbase CEO’s Advice to DeFi Projects: Litigate Against Regulators to Establish Legal Precedent

Armstrong further stated that it is highly improbable that the Commodity Exchange Act even applies to these protocols.

He expressed his hope that DeFi protocols would litigate cases brought against them by U.S. regulators to establish legal precedents, emphasizing that the courts have consistently shown a willingness to uphold the rule of law.

In recent months, U.S. regulators have intensified their enforcement efforts targeting cryptocurrency businesses.

Just last week, the Commodity Futures Trading Commission (CFTC) took legal action against and reached settlements with three decentralized exchanges (DEXs): Opyn, ZeroEx (0x), and Deridex. The regulators imposed fines and issued ‘cease and desist’ orders against these DeFi platforms, accusing them of unlawfully offering leveraged and margined retail commodity transactions in digital assets, among other violations.

The imposed civil monetary penalties amounted to $250,000, $200,000, and $100,000 for the respective platforms. In April of last year, the U.S. Securities and Exchange Commission (SEC) appeared to broaden its regulatory scope to include DeFi when it reevaluated its definition of a cryptocurrency exchange. The proposal reinforced the application of existing rules to platforms trading crypto asset securities, including so-called ‘DeFi’ systems, thus encompassing DeFi within the broader category of regulated exchanges.

Brian Armstrong’s call to contest legal cases in the courts rather than settling suggests an alternative path forward for DeFi projects. A recent ruling by District Judge Katherine Polk Failla cleared Uniswap of allegations related to fraudulent tokens.

Judge Failla provided clarity on the distinctions between decentralized platforms operated by smart contracts, like Uniswap, and centralized exchanges such as Kraken and Coinbase. The U.S. Securities and Exchange Commission (SEC) has been actively scrutinizing major exchanges like Coinbase and Binance.

Failla’s verdict implies that while centralized platforms might be held accountable for token issuers’ misconduct, the inherent decentralized nature of DeFi platforms provides them with a degree of protection against similar legal challenges.