- It was recently announced by the securities and exchange commission in the United States and the CFTC that they had issued fines against Abra.
- For those that don’t know, this company allows users to trade tokenised versions of stocks and foreign currencies.
It was recently announced by the securities and exchange commission in the United States and the CFTC that they had issued fines against the California-based crypto company, Abra. For those that don’t know, this company allows users to trade tokenised versions of stocks and foreign currencies.
So by now, you may be asking what exactly happened with Abra?
Experts in the legal space are saying that decentralised finance (DeFi) is well overdue for a major crackdown from lawmakers and regulators with operators in this area already well aware of the Eagle eye watching them.
To start though, the securities commission have said that even though tokenised version of stocks weren’t fully backed by the stocks themselves, they were similar enough to be legitimate so they constituted securities. This would mean that Abra was breaking the law by offering them to customers in the United States, especially without taking measures to ensure that they were eligible contract participants. At least, that’s according to the SEC.
Even though the SEC said this, the CFTC has doubled down on their argument saying that it didn’t matter if the company excluded trades through its Filipino subsidiary and even went on to tell customers in the United States to stay away. The California-based team Typically mark to market it marketed it to sites typically used by U.S.-based customers and didn’t clarify whether its customers were actually American or not. In result of this, the two government bodies fined $150,000 to Abra each and the company agreed to cease from offering tokenised stocks.
This fine is evidence that lawmakers and regulators are starting to get more involved within the nascent industry. Josh Garcia, one partner at Ketsal law firm said the following:
“As market forces push DeFi out of relative obscurity, [regulatory agencies] will take notice and take action against companies that break the law. That’s literally in their job description,”
History seems to be repeating itself though as when the ICO industry raised billions of dollars, the SEC got quickly involved and even though they didn’t immediately take action, they were looking closely at the industry and its growth. Over the last two years, the commission has forced companies to return hundreds of millions of dollars to investors.
Garcia went on to further say that regulators are now quickly getting up to speed with decentralised finance, saying:
“They can look at DeFi applications, understand them, and now make convincing arguments that can threaten to consume the time and energy of an entire development team.”
He finally said, “I expect nothing but more inquiries, investigations, and regulatory actions going forward.”
The CEO of Aave, a DeFi protocol recently said that he is feeling the heat from regulators and is looking to legal protection as a result.
Speaking on Abra, Stani Kulechov said that it mainly took a big hit because it was too centralised. It was primarily built and run by a company with offices and salaried employees.
With all of this in mind, he is increasing his own legal resources and ensuring that the protocol is sufficiently centralised for when the need arises. The thing is, he is not alone in this. Many DeFi companies are building up the network themselves with a goal of decentralising the company as an end goal when their network eventually gets big enough. Kulechov said:
“Most of the DeFi protocols are operating in the idea of progressive decentralization. This means that the regulatory risk decreases as the protocol succeeds to get to the stage of full decentralization.”