United States regulatory body, Commodity and Futures Trading Commission (CFTC), issued a Primer on Smart Contracts, as per an official statement released on Tuesday.
The Primer which was released by CFTC’s fintech innovation hub, LabCFTC was a partly driven by an effort to to engage with innovators and market participants on a range of financial technology (FinTech) topics, and follows on a 2017 primer on virtual currencies and the agency’s recent FinTech Forward conference.
LabCFTC Director Daniel Gorfine stated, “Smart contracts are being used to drive further automation in our markets and may have an impact across a range of economic activities. This primer is focused on explaining smart contracts, exploring how they may impact our markets and highlighting potentially novel risks and challenges.” The primer while defining what smart contracts are, also reminds potential investors of both- benefits and risks.
The release says, “As with other areas of innovation, while there are many potential benefits, it is also critical to understand and mitigate risks and challenges; the primer accordingly works through a range of operational, technical, cybersecurity, fraud and manipulation, and governance risks and challenges. The primer goes on to speak to the CFTC’s role to protect market users and their funds, consumers, and the public.”
The Primer specifically touches on the CFTC’s role and smart contracts. Right off the bat, the primer says that smart contracts necessarily may not be smart. It elaborates saying, “The operation is only as smart as the information feed it receives and the machine
code that directs it.” It also adds that smart contracts may not always be legally binding as it can be a gift or some other non-contractual transfer, may be only part of a broader contract.
Coming to the CFTC’s role, the Primer said, “The CFTC’s mission is to foster open, transparent, competitive, and financially sound markets” and “By working to avoid systemic risk, the CFTC aims to protect market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act (CEA).”
While CFTC has usually been pro-cryptocurrencies, it is nonetheless interesting to see its take on smart contracts.
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