MINUTES OF THE DECEMBER 14, 2020 MEETING OF THE 

U.S. COMMODITY FUTURES TRADING COMMISSION’S 

TECHNOLOGY ADVISORY COMMITTEE 

The Technology Advisory Committee (TAC) convened for a public meeting on Monday, 

December 14, 2020, at 9:30 a.m., via teleconference hosted by the U.S. Commodity Futures 

Trading Commission’s (CFTC or Commission). The meeting consisted of one panel and a TAC 

vote. In the panel, the Virtual Currencies Subcommittee discussed the growth of decentralized 

finance (including smart contract-based financial services), as well as their development, 

potential regulatory challenges, and proposed courses of action. The TAC then voted on a 

recommendation from the TAC Cybersecurity Subcommittee that the CFTC provide clear, 

concise, and updated guidance on how the CFTC reviews highly sensitive cybersecurity and 

sensitive intellectual property. 

TAC Members in Attendance 

Richard Gorelick, TAC Chairman and Director, Eventus Systems, Inc. 

Christopher Chattaway, Managing Director, Goldman Sachs 

Thomas Chippas, Chief Executive Officer, ErisX 

Gary DeWaal, Special Counsel, Katten Muchin Rosenman L.L.P. 

Christopher Hehmeyer, Managing Member, Hehmeyer Trading and Investments 

Julie Holzrichter, Chief Operating Officer, CME 

Mayur Kapani, Chief Technology Officer, Intercontinental Exchange (ICE) 

Derek Josef Kleinbauer, Vice President, Bloomberg SEF LLC, and Global Head of Rates and 

Equities Electronic Trading, Bloomberg L.P., Bloomberg 

John Lothian, President and Chief Executive Officer, Jonathan J. Lothian Co. Inc. 

Timothy McHenry, Vice President, Information Systems, National Futures Association (NFA) 

Supurna VedBrat, Global Head of Trading, BlackRock 

Eddie Wen, Global Head of Digital Markets, JP Morgan Chase 

Haimera Workie, Senior Director for Emerging Regulatory Issues, FINRA 

Aaron Wright, Associate Clinical Professor of Law, Cardozo Law School, and Special 

Government Employee (SGE) 

Yesha Yadav, Professor of Law, Vanderbilt University, Special Government Employee (SGE) 

CFTC Commissioners and Staff in Attendance and Speakers 

Brian D. Quintenz, Commissioner and TAC Sponsor 

Heath P. Tarbert, Chairman 

Rostin Behnam, Commissioner 

Dan Berkovitz, Commissioner 

Dawn D. Stump, Commissioner 

Meghan Tente, Acting Deputy Director, Product Review Branch, TAC Designated Federal 

Officer (DFO) 

Invited Speakers in Attendance 

Hunter Landrum, Government Affairs Council, Two Sigma 

Jerry Perullo, Chief Information Security Officer, ICE 

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I. Opening Remarks 

Ms. Tente called the meeting to order. 

Commissioner Quintenz then gave his opening remarks, welcoming all who were 

attending. He discussed the past work of the TAC and its subcommittees, and stated that the 

TAC Cybersecurity Subcommittee may make recommendations regarding data protection 

initiatives at this meeting. The Algorithmic and Modern Trading Markets Subcommittee along 

with the CFTC’s Market Intelligence Branch helped the TAC develop an understanding for the 

implementation of best practices for automated and electronic trading risk controls by both 

exchanges and firms. This informed the Commission’s final rule regarding electronic risk 

controls and resulted in entirely principles-based risk controls. Commissioner Quintenz thanked 

all who have contributed to the TAC’s work during his time as Sponsor, including the members 

and especially the TAC Chairman, the Designated Federal Officer, and the Alternate Designated 

Federal Officers who coordinated and facilitated subcommittee discussions. He then stated the 

meeting today would cover decentralized finance and a re-presentation and vote on 

recommendations for the Cybersecurity Subcommittee. 

Next, Chairman Tarbert gave his opening remarks. He thanked all for their attendance, 

and specifically thanked Commissioner Quintenz and his staff, the DFO, the TAC Chair, and all 

TAC members for taking the time to share their valuable perspectives. 

Following the Chairman, Commissioner Stump thanked Commissioner Quintenz and Mr. 

Gorelick for their leadership of the TAC. Commissioner Berkovitz also thanked Commissioner 

Quintenz for his leadership and the speakers in advance for their presentations. He also thanked 

Ms. Tente and Mr. Gorelick for their hard work. (Commissioner Behnam had difficulty joining 

the call and did not provide opening remarks.) 

II. Panel I: Virtual Currencies Subcommittee Presentation: The Growth and 

Regulatory Challenges of Decentralized Finance. 

Mr. Gorelick introduced the first panel. He stated that the panel would begin with a 

presentation from the TAC’s Virtual Currencies Subcommittee regarding the growth and 

regulatory challenges of decentralized finance. In particular, they would discuss a broad 

category of emerging smart contract-based financial services being built on top of blockchains, 

known as decentralized finance (DeFi). 

Mr. DeWaal opened the panel by asking Mr. Wright to answer the question, what is 

DeFi? Mr. Wright stated that DeFi was part of the blockchain ecosystem and that it uses smart 

contracts to create financial services and other products that aim to be noncustodial in nature. He 

stated that a smart contract can be thought of as a small bit of computer code or computer script 

that’s running on a blockchain. Each node on a blockchain-based network like Ethereum will 

execute a portion of a smart contract. Once the computer software or script is deployed on a 

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blockchain-based network, it is difficult to remove or stop the software if users are interacting 

with it. 

Mr. DeWaal then asked Mr. Wright to define certain other key terms. He explained, for 

example, that “apps” are applications that are often administered via an online portal, supported 

by individuals or entities that pull together assets into what is known as a liquidity pool. Those 

that deposit assets into a liquidity pool lock their assets, and often earn fees and/or automatically 

receive digital assets in the form of governance tokens. These tokens give the holders the ability 

to steward and weigh-in on certain aspects of how these protocols operate. The practice of 

submitting assets to a DeFi protocol is referred to as liquidity mining. And the process of 

earning fees and/or governance tokens or other forms of assets is referred to as yield farming. 

Mr. Wright then described broader trends in the DeFi space. He observed that DeFi is 

growing incredibly fast. Currently, there is about $14 billion in digital assets locked in various 

different DeFi products and services, which is a massive increase over even recent months. 

Moreover, over 10% of the amount locked in DeFi protocols is in Bitcoin. 

Mr. Wright then discussed some of the products and players in the DeFi landscape. He 

observed that there are a number of smart contract-based protocols and centralized aggregation 

tools that are beginning to hit the market. On the protocols side, there are decentralized 

exchanges (DEXes); borrowing and lending protocols; derivatives and synthetic asset protocols; 

and insurance prediction markets. On the services side, there are DEX aggregators, and yield 

and asset management protocols. 

As Mr. Wright explained, at the base of the ecosystem is the blockchain; a number of 

protocols that are smart contract-based perform certain financial functions like 

borrowing/lending, exchanging derivatives and synthetics assets, prediction markets, and 

insurance. Mr. Wright discussed the general benefits and risks associated with DeFi. Potential 

benefits include the following: lower costs, possible community-run financial infrastructure with 

a number of stakeholders involved, permission-less access, composable and interoperable 

products, and a high security profile. With regards to potential risks, Mr. Wright stated that risks 

were just emerging and include the following: the software is complex and requires time to 

understand, unknown systemic risk if there is a run on liquidity, lower levels of liquidity, limited 

(but increasing) ability of blockchains to process transactions, increased security risks, and 

because so many individual systems are involved, regulatory uncertainty. 

Mr. Wright then opened a discussion on the regulatory and legal issues related to DeFi. 

Mr. DeWaal stated that DEXes rely on an automated market maker’s smart contract or set of 

smart contracts, and allow for the trading of digital assets without necessarily using the order 

book. Generally, DEXes rely on two smart contracts. One is an exchange smart contract, which 

holds a pool of one or more tokens. The other is a related factory contract, which is a contract 

that actually creates one or more exchange contracts, and makes it easy to identify the available 

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liquidity pools. These smart contracts are open and permission-less. They have been designed 

to work on a technical level, but they do not necessarily incorporate regulatory compliance. 

Interacting with decentralized exchanges will look and feel a lot like interacting with any other 

website, but the interface is not being served for a central company, thus creating regulatory 

complexity. The contracts are traded algorithmically and traded in a pool-to-peer transaction, 

which allows for fairly stable pricing. 

Mr. Wright also discussed the emergence of various DeFi lending protocols. He 

observed that, generally, these protocols provide lending or borrowing-related functionality and 

are overcollateralized to maintain stability. 

Mr. Wright then discussed how the smart contracts themselves contain the rules with 

regard to how the DEXes and lending protocols function. Since the rules generally are not 

modified, users can interact with a degree of confidence and security. He also discussed the 

creation of derivative and synthetic protocols that derive their value from an underlying digital or 

real-world asset. He discussed how DeFi protocols and services are becoming more and more 

complex as users interact with them. As a result, there is an increase in the number of 

aggregators (including DEX aggregators, yield aggregators, and asset managers) that make it 

easier to interact with these new types of services. These aggregators have a non-custodial 

relationship, and control of the underlying asset is never transferred. 

Mr. Gorelick then opened the floor for questions. Generally, the concerns and 

discussions raised in this session included: how to ensure that DeFi projects remain truly 

decentralized; the fact that mechanisms to govern these smart contracts vary on a case by case 

basis; and whether and how to deal with governance tokens that can be used for nefarious 

purposes in secondary markets. 

Mr. Wright then discussed the regulatory and legal aspects of DeFi. In terms of 

regulatory oversight, many regulators could be involved depending on the issues involved. For 

example, the decentralized autonomous organization (DAO) token itself was deemed to be a 

security by the U.S. Securities and Exchange Commission (SEC) and could be subject to 

regulatory issues arising under the Securities and Exchange Act and Investment Advisor Act. 

There could also be potential issues under the Bank Secrecy Act and state money transmittal 

laws. In the context of the CFTC, if unregistered futures commission merchants (FCMs), 

designated contract markets (DCMs), swap execution facilities (SEFs), or designated clearing 

organizations (DCOs) were involved, if there was fraud, or if commodity pool operator (CPO) or 

commodity trading advisor (CTA) rules were violated, there could be some potential regulatory 

issues. He further stated that proving liability under any of these rules and regulations could be 

difficult as a developer would have to reasonably foresee at the time that they create the code 

that it may be in violation of the relevant rules and regulations. He further discussed the various 

factors in determining whether there is secondary liability for potential violations. While 

secondary liability could be a deterrent, it cannot stop a DeFi protocol because they cannot 

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generally be stopped from running once they have started. He also discussed a new theory of 

liability called contributory liability. To deal with the concerns regarding liability, he suggested 

regulators consider a safe harbor to create a regulatory incentive to build and support 

compliance. Another approach is to regulate decentralized finance through secondary liability 

under the Commodity Exchange Act and other statutes. He highlighted that it was important to 

ensure that innovation is not being limited by regulation. 

Mr. Wright concluded by observing that the TAC was considering recommending to the 

Commission a number of things, including: a wait and see approach to see where risk manifests 

in protocols; to carefully consider whether to impose direct liability on smart contract 

developers, miners, and validators; to consider the level or fairness when applying liability; and 

to research and explore theories of secondary liability. 

Mr. Gorelick next opened the floor for questions. Since there were no questions, he 

called for a break before the TAC voted on a recommendation from the Cybersecurity 

Subcommittee. 

[Break] 

III. TAC Vote on Recommendation from the Cybersecurity Subcommittee 

Mr. Gorelick introduced the last matter for the morning, a vote on a recommendation 

from the Cybersecurity Subcommittee. The Subcommittee had recommended that the TAC 

recommend to the CFTC that the agency provide clear, concise, and up-to-date guidance on how 

the Commission reviews highly sensitive cybersecurity artifacts and sensitive intellectual 

property. As members of the TAC had been briefed on these issues previously, Mr. Gorelick 

asked for brief explanations of the recommendations. Mr. Landrum stated that regulated 

financial institutions have identified significant risk in the collection, concentration, storage, and 

securing of highly sensitive cybersecurity artifacts and sensitive intellectual property during 

regulatory examination procedures. Mr. Perullo stated that as a large multinational exchange, 

they see many different approaches to regulation. He stated that the Commission has been 

effective in dealing with the clearing side and the market side, and viewing sensitive artifacts in a 

shared location and taking notes rather than taking the artifacts away. With the vote today, the 

subcommittee is ensuring regulators are able to access the data they need in a secure manner and 

minimize the need to take possession of artifacts. 

Mr. Gorelick then moved that the TAC adopt the recommendation from the 

Cybersecurity Subcommittee. All voted in favor except NFA, which abstained because of its 

regulatory role. 

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IV. Closing Remarks 

 In closing, Commissioner Quintenz, Chairman Tarbert, and the remaining 

Commissioners all expressed enthusiasm for the excellent discussion and stated they were 

looking forward to future discussions. 

Ms. Tente adjourned the meeting at 11:30 a.m. 

 

______________________________ ___________________ 

Richard Gorelick Date 

TAC Chair 

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