Cryptocurrency Regulation

ErisX in Letter to CFTC: Regulated ETH Futures Would Improve Market, Draw New Traders

February 16, 2019


ErisX in Letter to CFTC: Regulated ETH Futures Would Improve Market, Draw New Traders

Chicago-based cryptocurrency exchange ErisX filed a comment letter with the United States Commodity Futures Trading Commission (CFTC) yesterday. The letter comes in response to the agency’s request for feedback on how Ethereum works and its current market.

In the letter ErisX states its belief that “the introduction of a regulated futures contract on Ether (“ETH”) would have a positive impact on the growth and maturation of the market for Ether, as well as the Ethereum Network (“Ethereum”) more broadly.”

ErisX is a reboot of the traditional futures market Eris Exchanged, which was launched in 2010. It is expected that in the early half of this year they will begin to offer cryptocurrency trading to institutions and retail clients, and offer futures contracts in Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), and Litecoin (LTC). In October, major retail brokerage house TD Ameritrade announced it would back ErisX.

The letter goes on to argue that ErisX’s goal of listing and trading ETH futures on CFTC regulated markets is “consistent with its statutory mission to foster open, transparent, competitive, and financially sound derivative trading markets and to prohibit fraud, manipulation, and abusive practices in connection with derivatives and other products subject to the CEA [Commodity Exchange Act].”

In the same paragraph, ErisX also notes that “in 2014, the CFTC declared virtual currencies to be a ‘commodity’ subject to its oversight pursuant to its authority under the Commodity Exchange Act (CEA).” In June 2018, it was determined that neither Bitcoin nor Ether were securities — which would put them under the SEC’s domain — but instead commodities, which puts them under the CEA’s jurisdiction.

Answering the CFTC’s request for information about Ethereum’s mechanics, ErisX explains that Ethereum uses the same principle blockchain architecture as Bitcoin, in that it is a secure, distributed ledger, but has “new computational capabilities for the execution of arbitrary code.”

In describing Ether’s current market, the letter notes that it, like the crypto market in general, suffers from a “fragmented global market structure of trading platforms and ‘exchanges’ with significantly varying degrees of regulatory oversight and operational transparency and integrity,” leading to price volatility and swings in liquidity.

Ultimately, ErisX asserts that CFTC-regulated Ether products would increase participation from both retail and institutional traders, leading to a “more robust, liquid, and resilient markets” and “improved risk management for asset owners, market makers, and miners/validators.”