CFTC Chair Says Binance Hack Proves Case for US Oversight of Offshore Exchanges

CFTC Chairman Michael Selig said the record Binance hack makes the case for bringing offshore crypto exchanges under US federal rules, using the roughly $6.4 billion theft to press a rulemaking push his agency advanced while Congress stalls on market-structure legislation. Selig made the argument in a Friday appearance on CNBC's Squawk on the Street, two days after attackers drained the exchange's hot wallets in the largest crypto theft on record.

"The real issue here is that these are unregulated offshore exchanges, and they don't have the same sorts of safeguards that we have in our financial markets here in the United States," Selig told CNBC in the Oct. 30 segment, listed at 2:03 p.m. EDT on the network's video page. The breach "proves our exact point" behind crypto-market regulations the agency proposed earlier in October, the outlet reported from the same interview.

Selig pitched what he called a federal option that would let such venues register with the CFTC and submit to the same cybersecurity standards that govern US markets. The CFTC has moved forward with its own crypto rulemaking rather than wait on Congress, Decrypt reported, sending the White House proposals that would define event contracts as swaps and floating a plan to place crypto exchanges under federal oversight. That push gained urgency after the Clarity Act, the House-passed market-structure bill, stalled in the Senate following a failed cloture vote in September.

The chairman played down a role for blockchain itself in the attack. The exploit, he said, did not break Ethereum or its smart contracts. It instead used a vulnerability he believed was introduced from someone's laptop, an incident type that also occurs in traditional markets. Where crypto differs, Selig said, is the speed at which funds move, far faster than in traditional markets, and the ability of attackers to route them through tools such as Tornado Cash to obscure their trail. TRM Labs has said the broader breach points to a compromise of Binance's signing infrastructure rather than a weakness in any blockchain, a finding the article also cited.

Binance's own account of the intrusion has grown more complicated since its first investigation. The exchange initially pointed to a compromised laptop belonging to a DevOps engineer. On Friday, CEO Richard Teng said a wider review had uncovered additional points of breach and called the incident a more complex attack process that did not simply use one engineer's permissions. According to the Decrypt account of the exploit, the attacker turned a Binance hot wallet into a sweeper using 50 pre-signed authorizations tied to EIP-7702, an Ethereum feature that lets ordinary wallets run smart-contract code.

Selig cast the public nature of blockchain records as an advantage for regulators regardless of where an exchange is based. "The fact that we can trace transactions on-chain, even when some of these technologies are used to obfuscate that, gives regulators a lot of potential to be really cop on the beat here," he said, as the report quoted him. The remark framed on-chain visibility as a tool that still works even when attackers try to scatter funds across multiple addresses and privacy protocols.

The theft remains under investigation by federal law enforcement. The Secret Service and FBI have opened a probe into the Oct. 29 attack, and TRM Labs and Chainalysis have tied the theft to North Korea's TraderTraitor group. Binance has set aside $6.34 billion of company funds to cover customer losses and has told users their assets are safe.

The agency's October proposals would, among other things, treat certain event contracts as swaps under its existing authority, part of a broader shift in which US regulators have taken the lead after the Clarity Act stalled in the Senate. The CNBC video of Selig's remarks runs one minute and 24 seconds and remains posted on the network's site.