CFTC commissioner criticizes DeFi, decries lack of intermediaries

In a June 8 keynote address, Commissioner Dan Berkovitz of the Commodity Futures Trading Commission spoke out against decentralized finance or DeFi.

Berkovitz's speech focused heavily on the importance of financial intermediaries that regulators can hold legally accountable for malfeasance. He said: 

"Intermediaries such as banks, exchanges, futures commission merchants, payment clearing facilities, and asset managers — such as many of you at this conference — have developed over the past two or three hundred years of modern banking and finance to reliably provide critical financial services to support the financial markets and the investing public."

With DeFi, Berkovitz said, there are no intermediaries that regulators can charge with protecting investors. He described such a system as "a Hobbesian marketplace" and said of unregulated DeFi markets that he does "not see how they are legal under the CEA."

At the same time, Berkovitz's commentary seems to depend on an extremely limited vocabulary of DeFi knowledge, repeatedly citing the Wikipedia article for "decentralized finance" and, indeed, describing the experience of Googling the term: "If you type “DeFi” into Google search, a top link is to a Coindesk article, 'What is DeFi?'"

The challenge of regulating DeFi markets has loomed large since an explosion in interest in platforms like Uniswap and Sushi last summer. Commissioner Hester Peirce of the Securities and Exchange Commission has spoken at length about her vision of forbearance for DeFi development.

But as Berkovitz's commentary shows, attitude towards decentralization is inversely proportional to attitude towards intermediaries. What's more, his speech indicates that there is a gulf between more DeFi-friendly regulators like Peirce and those who view the space as problematic.