Derivatives' Old Guard Fights FTX Chief Over Plan to Cut Out Middlemen
FTX chief Sam Bankman-Fried spent hours before U.S. lawmakers Thursday defending his effort to allow customers to directly clear margin-backed crypto derivatives. The existing derivatives industry and its allies argued he’s seeking a power that could stretch well beyond crypto.
Several members of the U.S. House Committee on Agriculture – which oversees the Commodity Futures Trading Commission (CFTC) – expressed wide distrust of the cryptocurrency industry during a hearing, even raising the recent mayhem with terraUSD (UST). Bankman-Fried took heat from both Democrats and Republicans on the panel, with Chairman David Scott (D-Ga.) saying the FTX.US proposal to the CFTC “could be a serious threat.”
But representatives of the derivatives markets made it clear FTX is directly threatening their territory, arguing that cutting out intermediaries for derivatives trades wasn’t just an idea that was going to stop with digital assets. Terry Duffy, the chief executive officer of CME Group, the world’s leading derivatives exchange, aimed much of his criticism at the possibility FTX would expand beyond crypto, because its application would allow it to do so.
"The risk of this going into other markets is extremely detrimental," Duffy told lawmakers. "This is a proposal that's fraught with danger."
Bankman-Fried repeated several times that his company has no wider intent, for now.
"We do not have any plans to launch non-digital asset contracts any time soon through this model," he said. "I'm not lying to you,” Bankman-Fried insisted at one point. “I really do mean this."
He suggested FTX would be willing to accept some additional formal limits, though he didn’t agree to permanently locking his firm into only digital assets. He also pointed out that FTX is already approved by multiple overseas regulators to clear crypto transactions in methods similar to what they’re asking permission for in the U.S.
“The model that we'd be proposing for U.S. FTX derivatives is a more conservative model than what we operate overseas, and I think that it has provided a large number of helpful risk features and safeguards on the product,” Bankman-Fried said.
One lawmaker, Rep. Sean Maloney, (D-N.Y.), told Bankman-Fried that he’d come up with “a cool idea.”
“You sure got everybody stirred up,” he said of the derivatives industry representatives opposing the application. “They hate this idea, understandably, because of what it does to their business,” he said, adding that “it’s a hell of a disruption – let’s face it.”
On May 25, the CFTC, which is still weighing the company’s application, will host a roundtable to openly discuss the concept pushed by FTX, inviting industry representatives, academics and public-interest groups.
Sam Bankman-Fried is scheduled to speak at Consensus 2022 in June.
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