Commodity Futures Trading Commissionโs (CFTC) Christy Goldsmith Romero has pointed to the collapse of the Terra ecosystem and its flow-on effects as an example of how contagion risks within crypto markets are similar to those experienced by the traditional financial (TradFi) system during the global financial crisis (GFC) of 2008.ย
Romero suggested in a speech given at the International Swaps and Derivatives Associationโs (ISDA) Crypto Forum on Oct. 26 that increased links between crypto markets and TradFi increases the risk posed by crypto to overall financial stability, noting:
โThe digital asset market remains relatively small and contained from the level of systemic risk that would come with greater scale or interconnections with the traditional financial system. But this may not be the case in the near future, particularly given growing interest by traditional finance.โ
One area of TradFi the commissioner would prefer to remain distant from crypto is retirement and pension funds, an opinion which has likely been influenced by recent events in the U.K. where pension fund issues required intervention from the Bank of England.
I have significant concerns about the possibility of pensions and retirement funds investing in #Cryptocurency
โ Commissioner Christy Goldsmith Romero (@CFTCcgr) October 27, 2022
While Romero cautions the U.S. not to rush regulations, she supports a โsame risk, same regulatory outcomeโ approach as the level of risk posed by the crypto industry increases, suggesting:
โSimilar to post-crisis reforms, Congress can address financial stability risks by providing additional authority to the CFTC.โ
The GFC came about after banks began to lend recklessly to people without the means to fully pay back their mortgages. These โsubprimeโ mortgages were bundled together and sold as safe investment products before defaults started a ripple effect that spread across the world.
Related: โSecretly circulatingโ draft crypto bill could be a โboonโ to DeFi
While the CFTC is often regarded as the more crypto-friendly regulator compared to the Securities and Exchange Commission (SEC), it appears to be attempting to change that image as part of its bid to gain more regulatory oversight after revealing it instigated 18 enforcement actions on the sector throughout the 2022 fiscal year.
One of the more recent CFTC actions was the fine levied at the Ooki DAO and its members, which was heavily criticized by a CFTC commissioner and members of the crypto community, who referred to it as โblatant regulation by enforcement.โ
Before this action, decentralized autonomous organizations (DAOs) were regarded by many advocates as being โabove the lawโ, and have resulted in the formation of legal entities within DAOs as a way to limit liability.
