CFTC Warns Smart Contract Coders of Liability

US Commodity Futures Trading Commission (CFTC) Commissioner Brian Quintenz spoke at the 38th Annual GITEX Technology Week in Dubai, warning developers about the consequences of creating "event contracts".

Noting that his statements represented his personal views, Quintenz used prediction markets as an example of illegal uses of smart contracts, such as sports betting. 

The developers of such dApps may be held liable for activities that are “contrary to the public interest.” The Commissioner is confident that when using smart contracts for the “prediction market,” responsibility for illegal use should be borne not only by the users themselves, but also by the coders who create such contracts. Quintenza said code developers should think about the implications, even as they write code, that it could be used in a way that violates CFTC rules. 

As Quintenz noted, smart contracts that operate on the blockchain are designed to be “self-governing” and programmed to interact in accordance with binding, predetermined rules. However, this does not mean that the famous adage “code is law” applies, and smart contracts are subject to rules and specific legal precedents.

One such example of activity that falls under the category of what the CFTC calls a “prediction market” is the use of “event contracts” or other derivative contracts to bet on the outcome of future events.The offering of such contracts may fall within the purview of regulators bodies, regardless of what platform they work through. 

According to the Commissioner, smart contracts have great prospects and potential for improving the efficiency of existing markets. At the same time, they also raise new liability issues that users and developers must consider.