U.S. CFTC Commissioner Brian Quintenz warned a smart contract developer could be held liable for providing predictive event contracts if the developer could reasonably foresee, at the time they created the code, that it would likely be used by U.S. persons in a manner violative of CFTC regulations when spoke at the 38th Annual GITEX Technology Week Conference in Dubai yesterday.

According to Brian Quintenz, a smart contract is subject to CFTC regulation if

• the contract is accessible by U.S. persons;
• the contract has the essential characteristics of a swap, future or option;

"If the smart contract is within the CFTC’s jurisdiction, then the next question becomes, is the method by which it is being transacted on the blockchain compliant with CFTC regulations?  If the contract is a swap, is it being offered to retail participants?  Is it a product that must be traded on an exchange?  Does the protocol itself perform exchange-like functions by facilitating trading, thereby potentially implicating registration requirements?" Brian said, "These are all open questions that the CFTC must consider and resolve as smart contracts proliferate and perhaps become a common feature of our financial markets."

Smart contract developer could be held liable

Although the developers of the code could claim that they merely created the protocol and therefore have no control over whether and how users choose to use it once it is part of the public domain, Brian Quintenz pointed out that this may not always true and the appropriate question is whether these code developers could reasonably foresee, at the time they created the code, that it would likely be used by U.S. persons in a manner violative of CFTC regulations. For instance, if the code was specifically designed to enable the precise type of activity regulated by the CFTC, and no effort was made to preclude its availability to U.S. persons, the developer of the smart contract could be held liable and the CFTC could prosecute those developers for wrongdoing.

 

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