The US map: the SEC, the CFTC, and the taxonomy

Graduate · enrolled learners

This lesson opens with CFTC v Ooki DAO, 2022 to 2023.

What happened

In September 2022 the US Commodity Futures Trading Commission charged bZeroX, a decentralized-trading protocol, and its founders, and simultaneously charged its successor, the Ooki DAO, with offering illegal off-exchange leveraged and margined retail commodity transactions and with failing to run a customer identification program as an unregistered futures commission merchant. The founders settled for 250,000 dollars. The DAO itself did not appear, and in June 2023 a federal court entered a default judgment: the Ooki DAO was a 'person' under the Commodity Exchange Act, was liable, had to pay a 643,542 dollar penalty, and was ordered shut down. The case matters less for its size than for what it asserted: that the digital assets being traded were commodities under the CFTC's authority, not securities under the SEC's, and that a decentralized organization is a person the law can hold responsible. It is a marker on the US map showing that crypto activity can fall to the CFTC as readily as to the SEC, depending on what is being traded and how.

The decision point

The United States has no single crypto regulator; it has a map, and the two largest territories on it are the SEC, which governs securities, and the CFTC, which governs commodities and their derivatives. Which agency an activity answers to is decided by the classification of the asset and the nature of the activity, so the taxonomy question from the last lesson, security or not, is also the jurisdiction question: a security answers to the SEC, a commodity and its leveraged trading answer to the CFTC, and some things are argued over by both. Ooki DAO placed a marker on the commodity side and added that a DAO is a person who can be charged, which means 'we are decentralized' is not a location off the map. So the decision an institution makes is to locate each activity on the map first, what is being traded, whether it is a security or a commodity, and which agency's rules therefore bind, rather than assuming a single regulator or assuming that a novel structure escapes the map altogether.

Recorded loss

$643,542

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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