What's next for FTX’s proposal for crypto derivatives trading in the US?

Quick Take

  • The CFTC is busily working on FTX’s proposal to offer disintermediated crypto derivatives trading in the US. 
  • While the proposal has been wracked by political controversy, the CFTC is clearly invested in it. Expect delays, but the proposal’s ultimate outlook appears bright. 

Despite pushback from some in traditional finance, FTX’s proposal is in the hands of the CFTC. That’s good news for the crypto exchange. 

Yesterday, the Commodity Futures Trading Commission hosted a roundtable discussion on disintermediation, largely prompted by a much-discussed proposal from FTX, though the commission emphasizes that other proposal also aim to disintermediate clearing. 

There’s been plenty of criticism of FTX’s proposal. Some have said it puts too many eggs in one basket when it comes to risk along the chain of settlement, rendering it vulnerable to market volatility. Some fear that it will go too soon into markets for physical commodities, which often settle physically, requiring shipment logistics rather than a motion from one digital wallet to another.

Other critics simply don’t want US retail investors touching leverage — or, ultimately, investing in crypto at all. 

Wednesday's roundtable saw all of those arguments play out in the open. But, as FTX CEO Samuel Bankman-Fried told The Block following the hearing: “In the end, what’s going to matter is the process of the commission and our application.”

Barring concerted force majeure from Congress, the CFTC will make its own decision at its own pace. And given how FTX has successfully courted Democratic leadership in Congress, force majeure is unlikely.

As is traditional at roundtables, the CFTC commissioners themselves said almost nothing aside from general remarks. But they have clearly continued to work on the proposal despite the heat from critics. 

Indeed, the proposal appears to be a top priority. Yesterday’s roundtable was the first the commission held in person since before the Covid-19 pandemic era. Following seven hours of discussion, Chairman Rostin Behnam quipped in his closing remarks: “After two and a half years, we were reminded of the endurance it takes to stay in this room all day.”

Behnam himself has defended the processing of the proposal and promoted the expansion of the CFTC’s role in crypto. Other members of the CFTC seem similarly positive about FTX’s pitch.

On April 20, commissioner Caroline Pham tweeted a since-deleted picture of herself with Bankman-Fried and Mark Wetjen — himself a former commissioner-turned-head of policy for FTX. Pham wrote: “Thanks for coming to talk to me today! #crypto #web3.”

There is a great deal of scrutiny on this proposal, just as there is on all things crypto at the moment. The Commission has already extended the public comment period, delaying an ultimate decision as the process continues to unfold.

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

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