November 27, 2018

CFTC’s LabCFTC Releases Primer about Smart Contracts

The Primer Helps to Explain Smart Contract Technology and related Risks and Challenges

Washington, DC — The Commodity Futures Trading Commission’s LabCFTC today released, “A CFTC Primer on Smart Contracts.” This primer is part of LabCFTC’s effort to engage with innovators and market participants on a range of financial technology (fintech) topics, and follows on a 2017 primer on virtual currencies and the agency’s recent Fintech Forward conference.

“Smart contracts are being used to drive further automation in our markets and may have an impact across a range of economic activities,” said LabCFTC Director Daniel Gorfine. “This primer is focused on explaining smart contracts, exploring how they may impact our markets and highlighting potentially novel risks and challenges.”

The primer sets out to define “smart contracts,” including by exploring their history, characteristics, and potential applications that may eventually impact daily life. The primer includes graphics to help explain early self-executing software logic evolving into current smart contract technology – for example, starting with a simple vending machine illustration and then discussing more complex examples, including credit default swap contracts.

As with other areas of innovation, while there are many potential benefits, it is also critical to understand and mitigate risks and challenges; the primer accordingly works through a range of operational, technical, cybersecurity, fraud and manipulation, and governance risks and challenges.

The primer goes on to speak to the CFTC’s role to protect market users and their funds, consumers, and the public.

About LabCFTC

Launched in May 2017, LabCFTC is dedicated to facilitating market-enhancing financial technology (fintech) innovation, informing policy, and ensuring the agency has the regulatory and technological tools and understanding to keep pace with changing markets. LabCFTC is designed to make the CFTC more accessible to fintech innovators, and serves as a platform to inform the Commission's understanding of emerging technologies. LabCFTC will enable the CFTC to be proactive and forward-thinking as fintech applications continue to develop, and to help identify related regulatory opportunities, challenges, and, risks. Find more information at LabCFTC.