US Commodities Regulator Publishes Smart Contracts Primer

Published on 28 November 2018 by Cryptovest Staff

LabCFTC, an entity under the US Commodity Futures Trading Commission, published a primer explaining the concept, use cases, benefits, and risks of smart contracts.

The Commodity Futures Trading Commission’s (CFTC) LabCFTC published a guidance-like document called “a CFTC Primer on Smart Contracts” on Tuesday. The document follows on LabCFTC’s primer on virtual currencies, released last year, and the agency’s FinTech Forward conference held recently. Launched in 2017, LabCFTC aims to support fintech innovation and make sure that the CFTC is adequately responding to fast-changing fintech market trends.

The current primer was meant to define the concept of smart contracts, which represent blockchain features that allow parties to negotiate deals without third parties. The 32-page document discussed the origin, aspects, and potential use cases of smart contracts.

LabCFTC Director Daniel Gorfine commented:

“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.”

LabCFTC agrees that smart contracts have many benefits. However, there are several risks and challenges that must be considered, including technical, cybersecurity, operational, manipulation, and governance risks. The primer highlights the role of the CFTC in keeping market participants away from these challenges.

The primer says that a smart contract may potentially be a binding legal contract, but it has to comply with the US legal frameworks, such as:

  • Commodity Exchange Act and CFTC regulations:
  • Federal and state securities laws and regulations:
  • Federal, state, and local tax laws and regulations:
  • The Uniform Commercial Code (UCC), Uniform Electronic Transactions Act (UETA), and Electronic Signatures in Global and National Commerce Act (ESIGN Act):
  • The USA Patriot Act:
  • The Bank Secrecy Act:

Also, smart contracts may fall under several other AML laws and US money transmission laws.

“Existing law and regulation apply equally regardless what form a contract takes. Contracts or constituent parts of contracts that are written in code are subject to otherwise applicable law and regulation.”