The CFTC is integrating Nasdaq's market surveillance software to upgrade infrastructure from the 1990s, aiming to detect market abuse in stocks and cryptocurrencies.
Nasdaq's solution uses custom algorithms for the digital asset market, real-time analysis of multi-exchange order book data, and cross-referencing with traditional markets, while the U.S. Department of Treasury considers requiring digital identification in DeFi according to recommendations from the July 2025 White House report.
MAIN CONTENT
The CFTC integrates Nasdaq's surveillance tools to detect insider trading and manipulation, with data collected through legal authority.
The U.S. Department of Treasury is considering embedding identification checks into DeFi smart contracts according to the July 2025 White House recommendations.
Intense debate: promoting compliance and institutional investors or undermining the permissionless nature and privacy of DeFi.
What is the Nasdaq surveillance tool integration by the CFTC?
The CFTC announced the integration of market surveillance software developed by Nasdaq to modernize the old surveillance infrastructure, aiming for more effective market abuse detection (CFTC Press Release 9110-25).
According to Nasdaq, centralized software detects insider trading and manipulation across both stocks and cryptocurrencies. This move reflects the trend of merging monitoring tools between traditional markets and digital assets, responding to the reality of increasingly dense cross-market transactions. The CFTC's authority allows the agency to request data from supervised entities to feed the system.
Why is the CFTC upgrading market surveillance infrastructure now?
The explosion of digital asset trading and complex manipulation patterns have rendered the infrastructure from the 1990s inadequate, requiring real-time analytical capabilities and cross-referencing.
Recent investigative reports have highlighted several behaviors such as pump-and-dump and wash trading in cryptocurrencies. Chainalysis points out an increase in pump-and-dump tokens during the 2022–2024 period as a manifestation of manipulation (Chainalysis, 2025). Improved monitoring helps bridge the gap between regulation and market practice, while supporting enforcement as institutional capital participates more robustly.
How does Nasdaq's tool work in the cryptocurrency market?
Nasdaq stated that the algorithms are "customized for the digital asset market," providing real-time order book analysis across multiple exchanges and cross-market analysis.
"Custom algorithms detect specific suspicious patterns in the digital asset market. The solution provides real-time analysis of order book data across cryptocurrency trading venues and cross-analysis, potentially correlating activities between traditional markets and digital assets."
– Tony Sio, Chief Strategy Officer of Regulation and Innovation at Nasdaq, 2025, Cointelegraph
This approach targets abnormal trading patterns like layering, spoofing, cross-chain, and cross-exchange. By cross-referencing with traditional market data, the system can identify liquidity displacement tactics to conceal behavior. Early detection helps regulators respond swiftly to systemic risks.
Where does the CFTC collect monitoring data from?
Input data is collected by the CFTC through legal authority and transferred into the monitoring system, according to Nasdaq.
This includes order data, matched trades, and compliance reports from regulated entities. The requirement for data sources from government authorities helps ensure integrity and enforceability. At the same time, this model reduces dependence on unverified third parties, a key point when handling cross-border or multi-platform manipulation cases.
What are the debates on privacy in cryptocurrency surveillance?
Financial surveillance has always been a contentious issue in cryptocurrency: the privacy advocacy group fears a "digital prison," while another group sees AML/KYC as a prerequisite for institutional capital entry.
Organizations like FATF have recommended the Travel Rule for digital asset service providers since 2019 to reduce the risk of money laundering and terrorist financing (FATF, 2019; updated 2021). However, the extent and method of implementation is always an open question, especially when it touches on decentralized infrastructure and end-user privacy.
What is the U.S. Department of Treasury proposing for DeFi?
The U.S. Department of Treasury is considering requiring integrated digital identification checks in DeFi smart contracts to combat illegal financial flows.
The idea is to embed identification parameters or verification gateways into DeFi infrastructure, in order to screen high-risk addresses or entities before interaction. This approach may increase compliance but poses technical challenges, governance of identification keys, and information disclosure risks. Balancing security, privacy, and law enforcement capability will determine the viability of the proposal.
What does the July 2025 White House report recommend?
The July 2025 report on digital assets recommends that the Department of Treasury and NIST further develop KYC parameters and consider revising digital identification guidelines, identification information tools (The White House, 7/2025).
Recommendations also include reshaping market structure and tax policy for digital assets in the U.S. The call for NIST to update digital identity standards indicates that the government seeks a unified technical framework, laying the groundwork for new generation KYC/AML requirements compatible with DeFi and on-chain infrastructure.
Counterpoint: Does DeFi lose its permissionless nature?
Critics are concerned that integrating identification into smart contracts will alter the fundamental nature of the permissionless infrastructure of DeFi.
"If you turn a neutral, permissionless infrastructure into one where access is controlled by government-approved identification, it fundamentally changes the meaning of DeFi."
– Mamadou Kwidjim Toure, CEO of Ubuntu Tribe, 2025, Cointelegraph
The risk is the formation of a new censorship layer, reducing the openness and interoperability of the protocol. On the other hand, without a minimum identification framework, DeFi struggles to attract institutional capital due to compliance requirements. The challenge is to find a trustworthy "privacy-preserving KYC" model that still maintains the spirit of openness.
What impact does this have on exchanges, investors, and DeFi projects?
For exchanges and intermediaries, enhanced surveillance may increase compliance costs but reduces legal risks and improves market quality.
Investors benefit from transparency and reduced manipulation but need to adapt to deeper identification checks, especially as the CeFi–DeFi interface tightens. For DeFi projects, the pressure to integrate KYC/AML modules or interact with digital identity standards will increase, affecting user experience and liquidity, especially in previously permissionless protocols.
How do the surveillance approaches compare: Traditional, CFTC–Nasdaq, DeFi with KYC?
Different surveillance models vary in data sources, levels of intervention, and privacy risks. The table below shows the main differences from the perspective of enforcement and user experience.
Criteria Traditional Surveillance CFTC integrated Nasdaq KYC/ID-enabled DeFi Goals Detect insider trading, manipulation Detect cross-market abuse Prevent access by high-risk entities Data Used Exchange data, reports
compliance Multi-exchange order book, analysis
cross-stock–cryptocurrency Identification information, status
on/off-chain verification Detection speed Near real-time Real-time, cross-correlation Block before interaction Level of intervention Post-check, investigation Proactive monitoring, early alerts Pre-check access Privacy risk Low–medium Medium, depends on data sharing High if storing centralized identification Liquidity impact Neutral Reduced manipulation, improved quality Risk of liquidity fragmentation
What should businesses and projects prepare for?
Parties should review compliance, standardize order data, establish a reliable data provision channel for regulators, and test internal alerts.
For DeFi, consider privacy-preserving identification solutions like zero-knowledge proofs (ZKP) or verifiable credentials, as long as they are compatible with the recommendations from the Department of Treasury and the NIST standards currently under review. Proactively assessing the impact on UX and liquidity will help mitigate shock when policies are enacted.
Frequently Asked Questions
What does the CFTC use Nasdaq's tools for?
To detect and prevent market abuse such as insider trading and manipulation in stocks and cryptocurrencies, with real-time order book analysis and cross-market comparisons (CFTC; Nasdaq shared with Cointelegraph).
Where does the data used in the monitoring system come from?
The CFTC collects data from supervised entities through legal authority and provides it to the analytical system, ensuring integrity and enforcement capability (Nasdaq, Cointelegraph).
What is the U.S. Department of Treasury proposing for DeFi?
Considering the requirement for integrated digital identification checks in smart contracts to prevent illegal financial flows, according to the recommendations of the July 2025 White House report.
What role will NIST play?
The White House report recommends that NIST develop additional KYC parameters for digital assets and review and update digital identity guidelines to support safe implementation (The White House, 7/2025).
Does the KYC proposal in DeFi undermine decentralization?
There are concerns that this will cause DeFi to lose its permissionless nature and increase censorship. Some experts call for a balance through privacy-preserving KYC solutions to avoid undermining the core experience.
Source: https://tintucbitcoin.com/my-dung-nasdaq-chong-thao-tung/
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