The Chamber of Digital Commerce’s Smart Contracts Symposium this week included a panel that focused its attention on blockchain smart contracts and the difficulties regulators could face as they try to exercise their oversight power. The panel included two representatives from U.S. regulatory agencies: the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC). The representatives acknowledged that both agencies have been closely monitoring the rise of distributed ledger technology.
The regulators were in agreement on one major issue, indicating that their agencies are committed to providing regulatory oversight for the industry – though they are also reluctant to make any moves that might hinder its growth. Sayee Srinivasan, the chief economist for CFTC, observed that the industry has been attracting more investment in recent months – which at least partially explains the growing regulatory interest that is being seen around the world. Srinivasan suggested that smart contracts could be used to make regulatory audits even easier, but providing every distributed ledger with a “regulatory node.” That idea has been floated largely in response to industry experts who claim that self-executing code can eventually make regulators obsolete. As he noted in his remarks,
“If there’s money to be made, there’s people being incentivized to game the rules. There will be a role for the regulators, though there’s this belief that code is law.”
That last parting shot may have been aimed squarely at the DAO, which saw its code blamed for a spectacular failure that resulted in a large portion of its funds being delivered to an unauthorized attacker’s account. That resulted in an unprecedented rewrite of the code that saw ethereum’s blockchain rolled back to a point in time prior to the attack. Regulators wonder how the self-executing code in smart contracts would respond to similar problems with banking infrastructure.