CFTC Chairman Heath Tarbert Talks Ethereum, DeFi and the Next BitMEX

After the BitMEX enforcement action, are other noncompliant exchanges on the CFTC's radar? "Maybe," said Chairman Heath Tarbert.

In an appearance Wednesday, the regulator largely deferred to his colleagues at the SEC on the question of whether ether in a proof-of-stake version of Ethereum would be a security or a commodity.

That was Heath Tarbert, chairman of the Commodity Futures Trading Commission, who flexed a sophisticated understanding of blockchains during a live interview at CoinDesk's invest: ethereum economy virtual conference Wednesday.

Chatting with CoinDesk Chief Content Officer Michael J. Casey, Tarbert discussed how Ethereum and decentralized finance fit into U.S. securities and commodity laws, as well as the agency's recent enforcement actions and the potential benefits and risks of migrating financial activities to distributed networks.

"The more decentralized it becomes over time and the more that it effectively runs itself, the more likely it is it's going to fall within the commodity category and not the securities [group]," Tarbert said.

Tarbert has been an outspoken supporter of the cryptocurrency space since his arrival at the CFTC in mid-2019.

"The whole idea of DeFi really is, number one, it's obviously revolutionary, and I think at the end of the day could lead to a massive disintermediation of the financial system and the traditional players," Tarbert said.

Tarbert did not provide a firm answer about how assets involved in or issued by DeFi projects might fit into securities or commodities laws, noting it could depend on what the digital contracts do and how tokens are distributed.

If regulators aren't bringing actions against potential violators of securities laws, private individuals can still bring their own lawsuits, at which point a court would have to decide, Tarbert said.

Making Ethereum more environmentally friendly would be an additional benefit from shifting to proof-of-stake, Tarbert said during the chat, noting that proof-of-work, the consensus mechanism currently used by the blockchain requires energy-intensive machinery.