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Noelle Acheson is a veteran of business analysis and a member of the CoinDesk product team.
The following article originally appeared in InDesign Crypto of CoinDesk, an institutional newsletter, with news and opinions on the cryptographic infrastructure delivered every Tuesday. Sign up here.
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Are the future of the ether behind the corner?
Last week, the US Commodity Futures Trading Commission (CFTC) released a series of questions to the public, focusing on the operation of ethereum and the market for its token, ether.
This ethereal future is considered not a surprise. In July, Cboe Global Markets stated that it was contemplating the listing of futures on the ether, but was waiting for a CFTC guide, which implies that it had discussions with the regulator of derivatives. It is unlikely to be the only one.
What is a surprise is the new approach that the CFTC seems to take – and what it could mean for the ongoing development of cryptocurrency.
Futures on ether?
Before going into the evolving role of the CFTC, let's take a look at how likely future ethers are in the short term.
On the one hand, the listed derivatives of ether would give the CFTC insight into the underlying markets and will allow more effective monitoring of the network and pursuing possible cases of manipulation and fraud.
On the other hand, there is the problem of potential manipulation. The derivatives regulatory authority has often emphasized the importance of mitigating the possibility of manipulation in a given contract market – which means mitigating it even in the underlying market. Academic research has shown that the price of bitcoin was being manipulated during the initial phase and after the launch of bitcoin futures.
The volume of Ether is about a third of that of bitcoin, so it is not a way to assume that it is also vulnerable. Furthermore, the forthcoming protocol of consent that passes from proof-of-work to proof-of-stake adds a unique and substantial risk to the integrity of the underlying asset.
There is no doubt that it will have been exhaustively tested at the time of its airing, but no evidence can completely eliminate the possibility that something goes wrong. The added risk will flow into the derivatives market, not only from the confusion and volatility, but also from the peaks in the demand for coverage as the change approaches.
Thus, while a futures contract on a regulated exchange would give the CFTC greater influence in securing market integrity, there are strong fundamental reasons against it.
In way
If the CFTC decides that it definitely does not Do you want the derivatives of the ether to be exchanged on one of the platforms under your supervision, can you stop it? The Commodity Futures Modernization Act of 2000 introduced the concept of self-certification, in which exchanges can begin to negotiate a new contract the day after the presentation of the CFTC with the necessary commitments that the contract does not violate any rule.
While it is difficult to imagine an exchange that presents such documentation knowing that the CFTC disapproves, the agency has stressed it Self a contract complies with the established regulation, can not really say no.
Responding to the criticism that bitcoin futures were overcome without any public input, in January President Giancarlo reminded the community that self-certification rules have been implemented to promote innovation by implementing a faster approval process. However, he added to the revision checklist the requirement that solicitation exchanges search for and receive sectoral responses.
This is where we start to see a change in the approach.
More practical
One of President Giancarlo's main objectives, when he took office in 2017, was to strengthen the CFTC's influence on the markets he was appointed to regulate. He also spoke eloquently of the potential for blockchain and cryptocurrency.
As a result, his agency has embarked on a path between deeper supervision and support for the development of innovative resources.
Instead of allowing the bitcoin futures listing process to reflect the relatively simple self-certification enjoyed by more traditional contracts, the CFTC was in conversations with the stock exchanges concerned for months before launching and was instrumental to changes in margin requirements and information sharing.
The process for the future of ether has gone further.
It is rare for the CFTC to ask for public contributions to an underlying asset – this could signal the start of a new era of public / private partnership. Although the forum is open until February, the community response has already been informative and enthusiastic.
Joint effort
In the future, this collaboration will likely produce more robust cryptic markets with stronger institutional support.
Greater CFTC involvement and a broader understanding of the technology will provide a more in-depth view of how both cryptographic and spot platforms work. This should increase its comfort level with the growth of the sector.
The effect will be an even stronger layer of legitimacy, which could encourage further institutional investment in heritage and its infrastructure. It could also lead to the approval of other types of cryptographic products – for example, it is extremely unlikely that an etheric ETF would be granted before future ethers have some traction.
Greater supervision, greater regulatory support and greater investor confidence should lead to deeper liquidity, which in turn will further encourage the adoption and development of an important part of the cryptosystem.
Legal image through Shutterstock
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