FTX Chief Executive Sam Bankman-Fried spent hours Thursday before U.S. lawmakers defending his efforts to allow clients to clear margin-backed crypto derivatives directly. The existing derivatives industry and its allies argued he was seeking power that could extend far beyond cryptocurrencies.
Several members of the House Agriculture Committee - which oversees the Commodity Futures Trading Commission (CFTC) - expressed deep distrust of the cryptocurrency industry at a hearing, even addressing the recent mess with TerraUSD (UST). Bankman-Fried was opposed by both Democrats and Republicans on the panel, with Democratic Chairman David Scott saying the FTX.US proposal to the CFTC "could pose a serious threat."
Representatives of the derivatives markets, however, made clear that FTX.US poses a direct threat to their territory, arguing that cutting out derivatives trading intermediaries is not just an idea that would stop with digital assets. Terry Duffy, chief executive officer of CME Group Inc. the world's leading derivatives exchange, focused much of his criticism on the possibility that FTX would expand beyond cryptocurrencies because its application would allow it to do so.
"The risk of this spilling over into other markets is extremely detrimental," Duffy told lawmakers. "This is a proposal that is fraught with danger."
Bankman-Fried reiterated several times that his company had no further intentions for now.
"We have no plans to introduce contracts for non-digital assets through this model anytime soon," he said. "I'm not lying to you," Bankman-Fried stressed at one point. "I really mean it."
He indicated that FTX would be willing to accept some additional formal restrictions, although he was not prepared to permanently limit his company to digital assets. He also pointed out that FTX has already received approval from several overseas regulators to process crypto transactions using methods similar to those applied for in the United States.
"The model we're proposing for FTX derivatives in the U.S. is a more conservative model than what we're operating overseas, and I think it has provided a great number of helpful risk features and safeguards for the product," Bankman-Fried said.
One lawmaker, Assemblyman Sean Maloney, a Democrat from New York, told Bankman-Fried he had a "cool idea."
"They really stirred everybody up," he said of derivatives industry representatives who opposed the proposal. "They understandably hate this idea because it affects their business," he said, adding, "It's a huge disruption - let's face it."
On May 25, the CFTC, which is still reviewing the firm's application, will host a roundtable to openly discuss FTX's proposed approach, inviting industry representatives, academics and stakeholders.