Are US Crypto Regulators Staking Out Territories About Enforcement Actions?

As regulatory enforcement actions develop between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), the latter only subtly claims Ethereum (ETH) and DAI, a stablecoin backed by other crypto tokens, as digital commodities . The way these two tokens are now asserted is at the heart of what could be a jurisdictional dispute between the two authorities over who gets to regulate crypto.

With the latest CFTC action, the Ooki-DAO Complaint filed today, which involves complex legal arguments about whether governance token holders who vote in a DAO are liable, the complaint designates the tokens on the Ooki exchange implied as goods, which gives the agency the necessary jurisdiction to file the complaint. Similarly, in the SEC v. Wahi case against people accused of insider trading of tokens on the Coinbase exchange, nine tokens were flagged as crypto-asset securities.

In fairness, these two regulators are facing White House directives from the first-ever crypto framework launched last week as part of Executive Order 14067. In this framework, the Biden administration requests: “…regulators such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), consistent with their mandates Aggressively pursue investigations and enforcement actions against unlawful practices in the digital asset space.”

However, the need for each authority to issue enforcement measures may also create an opportunity for each of the regulators to stake their claim on which part of the crypto ecosystem they will regulate in the future. While Ethereum (ETH) is already widely viewed as a digital asset, DAI is definitely more interesting as the MakerDAO Foundation, which created the stablecoin, sees much at stake as to whether DAI is a security or a commodity. DAI argues that their stablecoin is not “algorithmically backed” but is backed by other crypto tokens. This is unlike Tether, which uses US dollars and its equivalents to back stablecoins, which were also alleged as a digital commodity in a CFTC complaint last year.

Crucially now, if these enforcement actions are the method by which certain tokens are claimed by the SEC and CFTC, either as digital commodity tokens or as security tokens, it would mean that some could interpret that the CFTC just determined that DAI now digital is a commodity and not a security.

In a recent Congressional Research Service (CRS) report titled “Stablecoins: Legal Issues and Regulatory Options,” SEC Chairman Gary Gensler was quoted as saying, “…that some stablecoins qualify as “securities” under federal law In particular, the report highlighted how Gensler explained that the SEC would claim these stablecoins as securities if the token is part of an investment contract or if the stablecoin constitute “notes.” could.

Meanwhile, it still appears that neither the SEC nor the CFTC have provided guidance that would help clarify the landscape as to whether digital tokens are securities and commodities, making the current business environment difficult for the industry and is stressful. With just one week left until the end of the US government’s fiscal year, at a time when US regulators tend to issue enforcement actions before year-end, the pressure is on whether a given token project will fit into the current approach of “ could be caught. Regulate through Enforcement’, the industry will likely be anxious to see any further complaints that may be filed by any of the regulators.

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