Coinbase CEO Urges Defi Protocols to Challenge Regulatory Crackdowns in Court

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The CEO of the cryptocurrency exchange Coinbase has encouraged decentralized finance (defi) protocols to fight regulators in court if they face regulatory crackdowns. He stressed that the Commodity Futures Trading Commission (CFTC) “should not be creating enforcement actions against decentralized (defi) protocols,” emphasizing that they are not financial service businesses. “The only thing this is accomplishing is to push an important industry offshore,” Armstrong cautioned.

Brian Armstrong Wants Defi Protocols to Fight Regulators in Court

The CEO of cryptocurrency exchange Coinbase (Nasdaq: COIN), Brian Armstrong, has urged decentralized finance (defi) protocols to challenge U.S. regulators in court after the Commodity Futures Trading Commission (CFTC) cracked down on some defi platforms.

The executive wrote on social media platform X on Wednesday: “The CFTC should not be creating enforcement actions against decentralized (defi) protocols. These are not financial service businesses, and it’s highly unlikely the Commodity Exchange Act even applies to them.” He added:

My hope is these defi protocols take these cases to court to establish precedent. The courts have proven to be very willing to uphold rule of law. The only thing this is accomplishing is to push an important industry offshore.

Last week, the CFTC took action against operators of three defi platforms for “offering illegal digital asset derivatives trading.” It was the first time the derivatives regulator charged defi operators.

While some people on social media agreed with Armstrong, others questioned how a decentralized protocol could take something to court. Moreover, some pointed out that many defi platforms are not truly decentralized.

Lawyer Jason Gottlieb commented on X: “I agree with Brian Armstrong that defi protocols should challenge the CFTC (and SEC) in court on overreaching settlement demands. The sad reality is that the agencies first attack smaller outfits, for whom it makes vastly more economic sense to settle rather than litigate.”

Zengo Wallet CEO Ouriel Ohayon opined: “Brian, I agree if defi was truly de-fi but when the code has admin keys controlled by one or few, back doors, ability to reboot/stop the protocol and more it’s more decefi whether this is the protocol or the interface of the protocol.” Defi analyst Chris Blec shared a similar concern, stating: “These ‘defi’ devs have backdoors to drain all funds and make any changes to the code that they want. How is that decentralized?” He alleged, “This includes Coinbase’s own ‘defi’ project, Base.”

Casa CTO Jameson Lopp wrote on X: “My hope is that defi protocols be so decentralized that the notion of them ‘going to court’ is absurd.”

What do you think about Coinbase CEO Brian Armstrong urging defi protocols to take regulators to court? Let us know in the comments section below.