A top US regulator said he Googled DeFi and thinks much of it is illegal

• A CFTC commissioner has said he thinks much of DeFi is a bad idea and probably illegal.
• Dan Berkovitz referenced Wikipedia and his Google searches in describing his research.
• He raised a number of concerns, including that getting rid of intermediaries could be dangerous.

A Commodity Futures Trading Commission official has said he thinks much of the decentralized finance, or DeFi, world is probably illegal - after searching for the term on Google and Wikipedia.

Commissioner Dan Berkovitz ranked DeFi among the key challenges facing the CFTC, which regulates US markets in derivatives such as futures, swaps and options, in a speech to an asset management derivatives forum on Tuesday.

The commissioner described his research, saying he had typed "DeFi" into Google and found a Coindesk article on the issue. He also gave the Wikipedia definition of DeFi.

DeFi aims to use blockchain technology to cut intermediaries such as banks and clearing houses out of financial activities such as trading.

But Berkovitz said he had decided that "unlicensed DeFi markets for derivative instruments are a bad idea." He said intermediaries are important because they can be held accountable when things go wrong.

Berkovitz, who has been a CFTC commissioner since 2018, added that he does not see how unlicensed DeFi markets are legal under the Commodity Exchange Act, a key piece of financial regulation.

His speech was one of the first public signs that US regulators are taking decentralized finance seriously. Many banks have started investing in the space, which has grown rapidly in 2021 and has the potential to disrupt some of their business.

Berkovitz said: "In my view, it is untenable to allow an unregulated, unlicensed derivatives market to compete, side-by-side, with a fully regulated and licensed derivatives market." He said competition between unregulated entities could result in regulated companies taking more risks.

"The CFTC, together with other regulators, need to focus more attention to this growing area of concern and address regulatory violations appropriately," he said.