Unchained Podcast Ep 402: Why the Ooki DAO Case Could Hurt Participation in DAOs
Primer: The Commodity Futures Trading Commission (CFTC) recently announced that they have filed charges against Ooki DAO for the listing and trading of margin trades. Why did this happen? What are the ramifications? Find out more from Nikhilesh De of CoinDesk in this episode of Unchained.
Enforcement Action By The CFTC
In mid September, the CFTC announced that it had settled charges against bZeroX and its founders on allegations that they were running an unregistered Futures Commission merchant
At the same time, the CFTC was filing charges against Ooki DAO, the successor of bZeroX, for the listing and trading of unregistered margin trades
The CFTC decided to charge people based on whether have they voted in the governance process of the DAO
Many people in the crypto industry believed that it is an overreach by the CFTC
Possible Reasons For Being Targeted
bZeroX advertised itself as a protocol that does not require KYC while offering financial products
They have been the victim of multiple hacks
Lawsuits have been made against the company
Once lawsuits are filed, these documents make it easier for CFTC investigators to investigate them
Thoughts On Commissioner Mersinger’s Dissent
💡 Commissioner Mersinger: “While I do not condone individuals or entities blatantly violating the Commodity Exchange Act or our rules, we cannot arbitrarily decide who is accountable for those violations based on an unsupported legal theory, amounting to regulation by enforcement, while federal and state policies developing.”
One of the key objections is that the CFTC is going after an association that is not incorporated
Part of the question comes down to how individual members are identified:
Not ideal to go after those who receive an airdrop since people don’t necessarily volunteer to get these tokens. Impossibly difficult for the CFTC to enforce
Other extreme is to identify the individuals who engage with the non-KYC offerings. Have no evidence so far whether CFTC knows the identities of such individuals
The middle ground is to go after those who have voted on a governance proposal with their tokens, which is unprecedented
She’s also concerned about the legal precedent that the CFTC is going with
Why Are People Concerned About This?
When token holders engage with a DAO in good faith, they might not have the expertise to understand that every single thing they do is right
Companies have lawyers and legal counsels to advise them on these matters
When people get sued, it appears on their record and this reflects badly on them
Intentionally or not, the CFTC ended up limiting the growth of the crypto industry through this action of theirs
Notification To Token Holders
💡 The CFTC posted a notice in the Ooki DAO forum stating that the members were being served. Would there be any defense for people that were not properly notified?
Don’t know if the actual DAO holders were notified
The CFTC posted the filings and complaint in a chatbot. We don’t know who receives the messages from the chatbot
The CFTC has asked a district court to approve these methods as proper service
The DAO would have until mid October to respond
Thoughts On What Happens Next?
The founder settled for the $250,000 fine. They will not be charged for their activities as part of the DAO itself
It’s going to come down to what kind of ruling and judgment the court orders
If the judge rules that the CFTC is correct, the DAO has to disband, refund whoever they have to, pay a fine, and cease and desist
Will be weird to see a federal agency go after a DAO
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