CFTC Digital Asset Interpretive Guidance

March 25th | 2020

The CFTC issued final interpretive guidance concerning what “actual delivery” means it applies to digital assets that serve as a medium of exchange, including within a particular blockchain ecosystem. Digital asset trading platforms now offer features that increasingly look like futures trading, but without the customer protections afforded by regulated futures exchanges. Because of the potential for fraud and abuse, the Commodity Exchange Act (CEA) calls for such trades to be treated as if they were futures, unless the commodity is “actually delivered” within 28 days. Thus, digital asset platforms and traders have been awaiting some guidance on what that term actually means.

The Proposed Interpretation sets out two central tenets of the CFTC’s view on when actual delivery of virtual currency has occurred:

  1. A customer having the ability to: (i) take possession and control of the entire quantity of the commodity, whether it was purchased on margin, or using leverage, or any other financing arrangement, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days from the date of the transaction; and

  2. The offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) not retaining any interest in or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction.

In essence, actual delivery has occurred when a customer achieves both possession and control of the virtual currency that is underlying the transaction. Helpfully, the proposed interpretation includes five examples to further clarify the meaning of actual delivery in the virtual currency context. The guidance acknowledges this area is continually evolving, so it is not meant to be interpreted as hard and fast rules. The CFTC will likely continue to employ a functional approach that assesses all relevant factors on a case by case basis.

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