DeFi and DAOs In Spotlight Of Latest CFTC Enforcement Action


An alleged fraudster wreaked havoc on a decentralized asset exchange called Mango Markets according to the latest enforcement action by the Commodity Futures and Trading Commission (CFTC).

In a statement last night, the regulatory agency announced the action against a trader, Avraham Eisenberg:

“This is the CFTC’s first enforcement action for a fraudulent or manipulative scheme involving trading on a supposed decentralized digital asset platform, and its first involving a scheme that is sometimes called ‘oracle manipulation.'”

Regarding “oracle manipulation,” the accused used a data stream (oracle) connected to the price of the Mango token to favorably affect the price of whatever he was trading – in this case, a derivative known as a swap.

The fraud outlined by the CFTC amounts to a classic “pump and dump” where the price goes up just long enough to let the pumper sell his shares, tokens and/or derivatives (this case).

In the space of 30 minutes last October, Mr. Eisenberg reportedly got away with $47 million in digital assets from the Mango Markets platform says the agency.

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Blockchain Industry Smackdown Continues With Stabenow, Scary Statement

No Crypto Allowed

The bad news continued for the blockchain industry last week with two consequential announcements.

First, Senator Debbie Stabenow (D, MI), Chairwoman of the Senate Agriculture Committee, announced out-of-the-blue that she will not run for re-election in 2024 and therefore leave the U.S. Senate at the end of her term on January 3, 2025.

Second, the offices of the Federal Reserve, Comptroller of the Currency and the Federal Deposit Insurance Corporation banded together on January 3 for a clear warning (PDF) that if you’re a bank – therefore regulated by the Federal government – crypto is a no-go. Happy New Year!


For crypto proponents, the loss of Stabenow diminishes the likelihood that the Digital Commodity Consumer Protection Act (DCCPA) – and perhaps any blockchain bill from Senate Ag – will ever see a vote on the Senate floor in 2023. DCCPA which she co-sponsored with Senate Ag Committee Ranking Member and Senator John Boozman (R, AR) remains well-poisoned by FTX CEO Sam Bankman-Fried’s (SBF) involvement.

Sen. Stabenow, 72, prioritized her remaining two years in Congress in a statement saying that “leading the passage of the next five-year Farm Bill which determines our nation’s food and agriculture policies” is critical. Going forward, blockchain is the last thing she wants to mention to voters who are inundated with the latest SBF drama as they consider a Democratic or Republican candidate for Stabenow’s seat in the months ahead.

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Senate Ag Committee Attempts To Resuscitate DCCPA, Distance From FTX

Senate Ag hearing

With the collapse of cryptocurrency exchange FTX not even a month old, the first FTX hearing commenced on Capitol Hill with the Senate Agriculture Committee questioning Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam yesterday in Washington D.C.

Overall, the hearing seemed to be a theater of positioning by Senate Ag intended to address…

    • Urgency – Senate Ag and the CFTC appeared to believe the Digital Commodity Consumer Protection Act (DCCPA) has more urgency than ever in light of the FTX collapse.
    • Overcoming the conflict of interest – Senate Ag and the CFTC endeavored to distance themselves from FTX and its founder Sam Bankman-Fried (SBF). The unspoken message is that FTX did not influence the creation of the DCCPA. On that note – and grasping for transparency, for example – CFTC Chair Behnam’s calendar in the past year was under the microscope which included 10 FTX meetings largely related to its subsidiary LedgerX and its DCO application – not DCCPA.
    • Refinement– Chair Rostin Behnam and Committee members urged that learnings from FTX’s implosion be incorporated into the new bill. In some ways, the refinement appears to be finding a way to bring companies like FTX onshore, which would have required the company to adhere to regulations that would have prevented the implosion in the first place.
    • Pause – In spite of the urgency, the need for refinement requires pause. DCCPA won’t be heading for a vote on the Committee or Senate floor until next year at the earliest. Chair Behnam advocated as much.

Hearing context

On its face, D.C. appears to be in soul-searching mode as it gropes for answers on how the FTX collapse occurred even though the company was based in the Bahamas. The krux of the concern, though, stems from the humiliation endured by unsuspecting lawmakers who had been courted and cajoled by FTX founder and CEO Sam Bankman-Fried.

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Treasury, SEC and CFTC Leaders Commiserate With Financial Markets On Crypto

Secretary Yellen

It’s not every 350-person trade conference that could attract a Cabinet member and the chairs of two U.S. regulatory agencies. But, that’s the importance of the annual meeting of the Securities Industry and Financial Markets Association (SIFMA) to the Biden Administration and keepers of the financial system at-large. And crypto took a “bow” repeatedly during the day-long agenda.

SIFMA defines itself as representation for broker-dealers, investment banks and asset managers and was formed in the early 2000s from the merger of the Bond Market Association and the Securities Industry Association according to Wikipedia. The day’s content showed that crypto is a subset of key concerns for the industry which include public policy & financial regulation, “modernization of finance” and retail investors.

As stated during the meeting by SIFMA President and CEO Kenneth Bentsen, consumer protections are at the top of the list – at least publicly – in terms of his organization’s views on crypto’s entry into the global financial system.

Janet Yellen – prepared remarks

The first U.S. government representative to take the stage was U.S. Treasury Secretary Janet Yellen.

Her prepared remarks are here. The highlights include:

    • On the U.S. economy – Sec. Yellen began by reassuring the audience that there is “significant strength” in the U.S. economy amid the global tempest of war and inflation to name a few. But, “inflation remains too high, and we are contending with serious global headwinds.”
    • On crypto – She touted recent reports from Treasury in response to the Biden Executive Order on digital assets saying, “Our goal is to realize the potential benefits of digital assets while mitigating and minimizing their risks.” She stressed the need for “adequate regulation.”

Janet Yellen – Q&A

During the Q&A with SIFMA’s Bentsen, Sec. Yellen said regarding digital assets:
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CFTC Action Brings DAOs Into The Enforcement Crosshairs

Up until last week, few had ever heard of bZeroX, let alone Ooki DAO.

But what a difference an enforcement action makes as the Commodity Futures Trading Commission (CFTC) announced on Thursday a $250,000 penalty against bZeroX and its founders, Tom Bean and Kyle Kistner, as well as charges for members of the decentralized autonomous organization (DAO), Ooki DAO, for offering “illegal, off-Exchange digital-asset trading, registration violations, and failing to comply with Bank Secrecy Act.”

Wait… a DAO? Oh yes. Time will tell if the action creates a chilling effect for Americans participating or having an interest in DAOs. Many think that if they join a particular DAO’s Discord channel, they are now a part of a DAO.

But, the CFTC took it a step further saying Ooki DAO members were defined “as those holders of Ooki tokens that have voted on governance proposals with respect to running the business.”

The basis of the CFTC charges for the DAO suggest that the alleged offending assets of bZx Protocol may have been transferred to what was pitched to DAO members as a decentralized structure that could overcome today’s regulatory requirements:

“…On approximately August 23, 2021, bZeroX transferred control of the bZx Protocol to the bZx DAO, which subsequently renamed itself and is currently doing business as the Ooki DAO. The Ooki DAO operates the Ooki Protocol (formerly the bZx Protocol) in the exact same manner as bZeroX and thus is continuing to violate the law in the same manner as bZeroX. By transferring control to a DAO, bZeroX’s founders touted to bZeroX community members the operations would be enforcement-proof—allowing the Ooki DAO to violate the CEA and CFTC regulations with impunity, as alleged in the federal court action. The order finds the DAO was an unincorporated association of which Bean and Kistner were actively participating members and liable for the Ooki DAO’s violations of the CEA and CFTC regulations.”

One of the Commission’s five members, Summer Mersinger, dissented (see the detailed release) on the part of the order related to token holders in the DAO but agreed on the punishment for bZeroX and its founders.

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Chair Rostin Behnam Amps Up CFTC’s Mission in Crypto

This afternoon, Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam participated in a webinar with think tank Brookings Institution titled, “The future of crypto regulation.”

Chair Behnam began with a speech making clear his belief that the CFTC is ready to regulate the cryptocurrency space.

“Regulators must be nimble, and new challenges may require us to dig deeper, take a different look into how our organic statutes promote our growth alongside the markets we regulate. In the absence of new legislative authority, we at the CFTC continue to look at how we can work to protect markets and investors within the bounds of our existing authority. We have (and will forcefully utilize) our fraud and manipulation enforcement authority. But, given the regulatory vacuum, we are also thinking creatively about how else we can use our existing regulatory authority to protect retail commodity markets and investors. Make no mistake: we will use all levers at our disposal, and all relevant authorities to continue rooting out fraud and manipulation.”

Read entire speech here (PDF).

Two main updates included elevating the importance of LabCFTC:

LabCFTC is evolving in new ways and will take on a new identity as the Office of Technology Innovation (OTI) with an updated operating model.  There is now a real intersection between the financial innovations and our markets that did not exist even a few years ago when former Chairman Giancarlo ambitiously and appropriately established LabCFTC as a means to accelerate CFTC engagement with fintech innovators.  As I testified in February, we are past the incubator stage, and digital assets and decentralized financial technologies have outgrown their sandboxes (…) OTI will also have an opportunity to evolve within its new structure and have flexibility to meet needs both internally at the Commission and externally in the regulatory space and in the markets.”

And the second update appears to align with education and consumer protection:
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Will SEC Chair Face Scrutiny From Democrats

Democrats and the SEC

A Securities and Exchange Commission (SEC) Chair appointed by a Democratic President under pressure from Democrats? It could happen soon. Republicans are already confronting Chair Gary Gensler and his agency.

Given last week’s demands for regulatory clarity amid an insider trading enforcement action brought by the SEC against a former Coinbase employee and others, blockchain-friendly Democrats may need to confront the SEC directly – likely after this fall’s elections.

Even Commodity Futures Trading Commission’s (CFTC) Caroline Pham seemed perplexed by the SEC’s latest action while quoting from James Madison’s Federalist No. 49. Noticeably silent was SEC Commissioner Hester Peirce whose past calls for regulatory clarity versus the use of enforcement are well-known.

The point isn’t that crypto markets should not be regulated. Far from it. But currently, these new, innovative markets are only regulated through enforcement. If Industry knew the rules at the outset, then it would be less likely to run afoul of securities laws. The SEC seems to be saying that regulation begins and ends with the early 20th century’s Howey Test (see PDF from 2019 on SEC website) and that’s all the clarity needed.

Democratic pressure on the SEC and Chair Gensler could build from any number of Senators and Representatives who are busy working on crypto regulation -even the President. The only thing preventing a Democrat-SEC collision is this fall’s elections as well as an extended crypto winter making crypto less interesting to voters and therefore Congress.

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House Agriculture Committee Takes On “The Future of Digital Asset Regulation” (VIDEO)

Vincent McGonagle, CFTC

Today, the House Agriculture Subcommittee on Commodity Exchanges, Energy, and Credit looked at “The Future of Digital Asset Regulation.” Video stream below.

Previously, the committee members Rep. Glenn “GT” Thompson (R, PA and Ranking Member) and Rep. Ro Khanna (D, CA) as well as Rep. Tom Emmer (R, MN) and Rep. Darren Soto (D, FL) have co-sponsored the Digital Commodity Exchange Act of 2022 (DCEA), which provides the Commodity Futures Trading Commission (CFTC) with oversight of key aspects of the digital assets world.

Four witnesses representing a regulator, an academic from the legal world and two blockchain industry executives have submitted prepared testimony for today as follows:

    • Vincent McGonagle, Director of the Division of Market Oversight, Commodity Futures Trading Commission (CFTC) – [See PDF]
    • Christopher Brummer, Georgetown University Law Center – [PDF]
    • Jonathan Levin, Co-Founder and Chief Strategy Officer, Chainalysis – [PDF]
    • Charles Hoskinson, CEO, Input Output Global, Singapore – [PDF]

View the hearing:

Live blog featuring Q&A with The Committee

Ranking members Thompson and Rep. Michelle Fischbach (R, MN) offer opening statements including the need for clearly defined core principles and regulation. Even though the blockchain industry is nascent and its unknown where it will lead,, Rep. Thompson says “that should excite us not intimidate us.” He’s all in on the innovation potential of blockchain and its potential benefits to the United States.

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