Is published speech regulated by the CFTC?

This week, the Commodity Futures Trading Commission (CFTC) took a notable action against Uniswap Labs which creates more questions than the answers it provides. This follows a line of CFTC enforcement actions against software developers Opyn, 0x, and Deridex from last fall. In all these actions, the targets settled and paid a fine rather than hashing it out in court. Therefore, none of these actions leaves a binding precedent or offers any regulatory clarity. That uncertainty is particularly damaging in this context because all of these enforcement actions implicate the rights of individuals to write and publish code–whether that be in the form of a cryptocurrency protocol or a front-end user interface.

This is a complex area of ambiguous statutory authority given the breadth and vagueness of the relevant Commodity Exchange Act (CEA) provisions. While that authority has been hashed out with regard to traditional activities, much uncertainty remains when it comes to crypto. These actions raise significant concerns about the chilling effect they could have on core American liberties when it comes to developing cryptocurrency protocols and front ends that interact with them, as well as the lack of clear guidelines by regulators as to what is permitted going forward.

This week’s order charges Uniswap Labs with violating the CEA. In general, none of the recent settlement orders clarify exactly what behavior triggered CEA obligations. Several activities including publishing smart contract software and operating a website or “front-end” are mentioned, but no attempt is made to explain to the general public (and potential future targets of enforcement) exactly which activities triggered obligations and why.

The settlement with Uniswap Labs states that they “contributed to the development and … deployed versions of a blockchain-based digital asset protocol,” “developed a web interface,” were a “major contributor to the development of the Protocol,” “deployed versions of the Protocol to the Ethereum blockchain,” and “created and maintained the Interface that facilitated access to the Protocol.” None of these factual allegations provides clear evidence of a requirement to register with the CFTC preemptively, nor to be bound by CFTC rules going forward. In fact, the opposite is the case. Without regard to the full facts and circumstances of this order (which we don’t know and aren’t public), each of these alleged activities seems to be merely publishing code – an activity that has no registration requirement and is protected under our First Amendment.

The Uniswap order focuses on providing a “front-end user interface” as the primary reason that Uniswap Labs is in violation. However, it is unclear whether or not some combination of activities (for example, publishing smart contract software and publishing a website) triggered liability, or whether one activity performed in isolation (just publishing software or just publishing a website) triggered the same liability. This lack of specificity can create a chilling effect, dissuading developers from experimenting with new technologies, openly sharing their innovations via publishing software on decentralized networks, or publishing a front end.

Moreover, even if these orders were clear on their proffered test for liability, this would be an unfair approach to creating any discernible guidance on policy. Settlements only bind the parties and the CFTC with respect to those parties; they are not precedents. To the extent the general public can glean anything from this and past orders, it cannot rely on them to better understand when and how they should comply with CFTC rules. Further exacerbating the uncertainty surrounding regulatory compliance, the settlements also offer the public no opportunity for comment.

Given that one way to read the ambiguous settlements would create liability for merely publishing smart contract software or publishing an interface, there are serious Constitutional and First Amendment overbreadth concerns associated with this and past orders. The CFTC has previously overstepped Constitutional limitations in the context of information publishers during a series of enforcement actions in the 1990s (In re Armstrong, In re R & W Technical Services, Ltd) and it was not until a target of such an enforcement was willing to challenge that abuse of discretion up to the Supreme Court that the CFTC was ordered to tread more carefully around American’s First Amendment rights (in Taucher v. Born). That is all the more reason to proceed carefully in these matters, to offer clarity upon which innovators can rely rather than traps for unwary publishers of code. As Commissioner Summer Mersinger noted in her dissent on the Uniswap order, “wielding the hammer of enforcement against these DeFi protocols may result in some short-term ‘wins,’ but in the long-term, without more, it will only create problems.”

The CFTC’s actions—both with Uniswap and in previous cases like 0x—create a chilling effect that threatens both speech and innovation. The action this week fails to establish a clear precedent for when CFTC regulatory oversight is appropriate, and without that precedent publishers of speech (be it protocol software or front-end user interface software) may choose to simply self-censor rather than risk a prosecution. Developers who wish to build new code, improve existing protocols, or improve upon how they interact with the public via front ends might hesitate, unsure of how their work will be interpreted under evolving regulatory standards.

A better approach would be for regulators to provide comprehensive, clear, and future-facing guidance that respects our First Amendment protections and allows innovation to be developed domestically. This approach would safeguard free speech, promote transparency, and ensure that regulatory oversight actually protects consumers.