{"id":29560,"date":"2020-10-02T20:09:35","date_gmt":"2020-10-02T17:09:35","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=29560"},"modified":"2025-08-27T17:41:58","modified_gmt":"2025-08-27T14:41:58","slug":"comment-the-bitmex-crackdown-bodes-ill-for-the-defi-sector","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/comment-the-bitmex-crackdown-bodes-ill-for-the-defi-sector\/","title":{"rendered":"Comment: The BitMEX crackdown bodes ill for the DeFi sector"},"content":{"rendered":"<p>The indictment by U.S. authorities against the crypto derivatives exchange BitMEX could be a gloomy omen for the decentralized finance sector. The reason is the reference to violations of the Bank Secrecy Act (BSA), according to Adam Cochran, partner at Cinneamhain Ventures.<!--more--><\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">1\/25<\/p>\n<p>So a lot of Crypto Twitter doesn\u2019t understand why today\u2019s news isn\u2019t just bad for CeFi but is also bad for DeFi.<\/p>\n<p>It has a something to do with legal nuance and a little something called the \u00abBank Secrecy Act\u00bb (BSA)<\/p>\n<p>Here\u2019s a run down for you \ud83d\udc47<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729872050544643?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>The expert notes that in criminal cases authorities often move from the letter of the law to its spirit, focusing more on achieving its objectives than on the precise wording.<\/p>\n<p>He points to the joint actions of the U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice against BitMEX.<\/p>\n<p>The CFTC can impose regulatory and civil penalties. In the DOJ&#8217;s remit lie criminal offenses.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">4\/25<\/p>\n<p>Today, *JOINT* charges from the CFTC and the DoJ were handed down to BitMex.<\/p>\n<p>The CFTC is a regulator, like the SEC that handles commodities. It applies regulatory and civil penalties, but it itself does not pursue criminal action. It lets the DoJ handle that.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729874822991872?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>The CFTC&#8217;s suit against BitMEX, in which the latter is accused of operating an unregistered trading platform, invites parallels with the DeFi sector\u2014how far the regulator&#8217;s guiding principles apply to DeFi protocols.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">6\/25<\/p>\n<p>Just like dealing with the SEC, the ways the rules are written and applied, and the spirit of those rules in CFTC guidelines make it unclear if the regulation should apply to DeFi.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729876655845377?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote>\n<p>&#8220;Perhaps the crypto community is right that the CFTC&#8217;s requirements do not apply to DeFi. It is a gray area. The Commission&#8217;s charges will lead to fines. A more serious threat is the BSA. Its job is to prevent money laundering,&#8221; the expert writes.<\/p>\n<\/blockquote>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">9\/25<\/p>\n<p>The DOJ handles the prosecution of the BSA which includes criminal charges.<\/p>\n<p>The Bank Secrecy Act does not have the goal of protecting consumers.<\/p>\n<p>The Bank Secrecy Act has the goal of stopping money laundering.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729879730335744?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>Cochran doubts that the decentralized nature of DeFi services absolves participants from accountability. He adds that the myth has been aided by a narrow view of regulatory limits on exchanges.<\/p>\n<p>As support for his view, he cites prosecutions of traders on LocalBitcoins and Paxful for alleged money laundering.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">13\/25<\/p>\n<p>Proof of this is that the DOJ has pursued individuals on sites like <a href=\"https:\/\/t.co\/bqnBZp4BZR\">https:\/\/t.co\/bqnBZp4BZR<\/a> and <a href=\"https:\/\/t.co\/omKS1uzAxv\">https:\/\/t.co\/omKS1uzAxv<\/a> with having been involved with facilitating money laundering or failing to comply with preventative measures.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729883622637568?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote>\n<p>&#8220;The litmus test here is whether the person merely sold a small amount of cryptocurrency in small batches once, or engaged in systematic commercial activity. To convict the latter, not much is required,&#8221; Cochran emphasizes.<\/p>\n<\/blockquote>\n<blockquote class=\"twitter-tweet\" data-conversation=\"none\">\n<p dir=\"ltr\" lang=\"en\">14\/25<\/p>\n<p>The only test here was whether the person sold crypto in small amounts once or engaged in a systematic commercial operation \u2014 and you\u2019d be surprised how small that operation can be and still count.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729884679598080?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>Under the BSA, the crucial point is the act of financial facilitation. Whoever you are \u2014 a person, an issuer, an exchange, a legal entity, a depository, a trustee or agent, or a combination of these \u2014 the expert explains.<\/p>\n<blockquote>\n<p>&#8220;The only thing that matters is whether you helped facilitate the exchange of monetary instruments for criminals in the United States without complying with the US KYC\/AML standards,&#8221; the expert notes.<\/p>\n<\/blockquote>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">16\/25<\/p>\n<p>Note how a company isn\u2019t relevant.<\/p>\n<p>The only thing that matters is do you make it easier for criminals in the US to exchange monetary instruments without applying the US standards of KYC\/AML.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729886621556737?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>Cochran argues that claims regulators cannot stop a smart contract are not credible. He notes leverage through the BSA on developers, frontend builders and firms hiring staff to work on the protocol.<\/p>\n<p>The partner at Cinneamhain Ventures believes users are likely to refrain from interacting with the protocol, which could lead to its shutdown.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">18\/25<\/p>\n<p>No, you can\u2019t but DAO or no DAO you can find that developers with admin keys, users who create front-ends, companies hiring individuals to work on the protocol and others who enable or profit from the contract, to be in violation on the BSA.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729888399896577?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote>\n<p>&#8220;The point is that a protocol is not outside the reach of authorities; there are always pressure points. While DeFi may sit in a grey area under some rules, it is clear that the BSA applies to them,&#8221; he sums up.<\/p>\n<\/blockquote>\n<blockquote class=\"twitter-tweet\" data-conversation=\"none\">\n<p dir=\"ltr\" lang=\"en\">20\/25<\/p>\n<p>The take away here is that a protocol isn\u2019t outside the reach of the government, there is always pressure points that can be applied.<\/p>\n<p>While DeFi *MAY* be in a grey area with *SOME* regulation, it is clear that the BSA still applies.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729890396385281?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>The expert contends that DeFi currently has no workable middle ground. There is no technology that would allow BSA compliance; and that, in his view, does not guarantee regulators won\u2019t demand it.<\/p>\n<blockquote class=\"twitter-tweet\" data-conversation=\"none\">\n<p dir=\"ltr\" lang=\"en\">22\/25<\/p>\n<p>The challenge is, that right now we don\u2019t know that middle ground, we don\u2019t have the tech solution that balances asset privacy, defi and BSA compliance \u2014 but that doesn\u2019t mean that it doesn\u2019t apply (or that it is necessarily a bad thing)<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729892287971328?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote>\n<p>&#8220;The point is that a protocol isn\u2019t outside the reach of the government; there are always pressure points that can be applied. While DeFi may be in a grey area with some regulation, it is clear that the BSA applies to it,&#8221; the expert concludes.<\/p>\n<\/blockquote>\n<blockquote class=\"twitter-tweet\" data-conversation=\"none\">\n<p dir=\"ltr\" lang=\"en\">25\/25<\/p>\n<p>DeFi needs to start planning BSA compliance or the exclusion of US users \u2014 because that day will likely come.<\/p>\n<p>Disclaimer: Not a lawyer, not US-based, may be some gaps in regulatory knowledge. Not investment advice.<\/p>\n<p>\u2014 Adam Cochran (@AdamScochran) <a href=\"https:\/\/twitter.com\/AdamScochran\/status\/1311729895282622464?ref_src=twsrc%5Etfw\">October 1, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>One user suggested that Bitcoin users could face the same enforcement risk. In the end, anyone could face this risk regarding unknown coins.<\/p>\n<blockquote class=\"twitter-tweet\" data-conversation=\"none\">\n<p dir=\"ltr\" lang=\"en\">All of BTC should be implicated under this explanation. Any entity owning, selling, or handling BTC, that didn\u2019t self-apply KYC to incoming-unknown BTC, would fall under this.<\/p>\n<p>\u2014 Nick Yeates (@nyeates) <a href=\"https:\/\/twitter.com\/nyeates\/status\/1311919382390624256?ref_src=twsrc%5Etfw\">October 2, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>In September, SEC Commissioner Hester Peirce <a href=\"https:\/\/u1f987.com\/en\/news\/sec-commissioner-hester-peirce-regulators-should-take-a-sterner-line-with-the-defi-sector\">stated<\/a> that regulators should take a less liberal approach to regulating the DeFi sector.<\/p>\n<p>In the BitMEX trader list, US residents were <a href=\"https:\/\/u1f987.com\/en\/news\/u-s-residents-identified-among-bitmex-traders\">found<\/a>.<\/p>\n<p>Subscribe to ForkLog news on Telegram: <a href=\"https:\/\/t.me\/forkloglive\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">ForkLog FEED<\/a> \u2014 the full news feed, <a href=\"https:\/\/telegram.me\/forklog\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">ForkLog<\/a> \u2014 the most important news and polls.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The indictment by U.S. authorities against the crypto derivatives exchange BitMEX could be a troubling omen for the decentralized finance sector. The reason is the reference to violations of the Bank Secrecy Act (BSA), according to Adam Cochran, partner at Cinneamhain Ventures.<\/p>\n","protected":false},"author":1,"featured_media":29561,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[788,879,1093,1138],"class_list":["post-29560","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-bitmex","tag-cftc","tag-defi","tag-opinions"],"aioseo_notices":[],"amp_enabled":true,"views":"24","promo_type":"1","layout_type":"","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/29560","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=29560"}],"version-history":[{"count":1,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/29560\/revisions"}],"predecessor-version":[{"id":29562,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/29560\/revisions\/29562"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/29561"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=29560"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=29560"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=29560"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}