Community-run projects that are popular in crypto are known as DAOs, which are in the sights of regulatory scrutiny…
A recent enforcement action by the Commodity Futures Trading Commission signals that popular community-run projects in cryptocurrencies known as decentralized autonomous organizations, or DAOs, are in the agency surveillance – as well as millions Everyone DAO governance token holders are used to make decisions.
The CFTC on Thursday filed and settled charges against bZeroX LLC and its founders Tom Bean and Kyle Kistner for illegally offering “leveraged and margined retail commodity trades in accounts.” digital assets”, among other allegations. Concurrently, the CFTC filed a federal civil enforcement action in the U.S. District Court for the Northern District of California charging the Ooki DAO — a decentralized effort that bZeroX transformed into last year — violates similar laws, referring to it as an “unincorporated association.”
The move could have a major impact on the nearly 5,000 DAOs in existence, about 2,300 of which are more than $1 million in assets, according to DeepDAO tracking. Many crypto projects have converted themselves into DAOs – institutions managed by holders of special tokens – over the past year, in part in the hope of avoiding regulatory scrutiny. Some of these cryptocurrencies application do not check the identities of their clients or comply with many applicable financial industry laws.
“I think this is an important move, because it emphasizes that regulators need not be discouraged by claims of decentralization,” said Hilary Allen, a law professor at American University. “Ultimately, there are always people who set up and run crypto services, even as they seek to evade regulators using DAOs. The CFTC has set a precedent to see through decentralization rhetoric and examine the economic realities of how DAOs work. ”
The actions of the CFTC are responsible for the violations of the DAO by those individuals Who participated in the decision making for the Ooki protocol by implementing their governance tokens. This is important, experts and market watchers say.
“This is a really far-reaching statement from the CFTC that everyone implementing governance tokens is somehow accountable to the DAO,” said Gary DeWaal, president of financial markets and regulatory practice at Katten Muchin Rosenman said. “It’s pretty important and from an industry point of view, pretty scary.”
According to DeepDAO, there are 3.9 million governance token holders, and they include many venture capital firms like Andreessen Horowitz.
“It is clear that the CFTC believes that anyone involved in the management of a protocol, even on one Marc Boiron, director legal employee at Polygon Company, construction company blockchain the infrastructure.
A spokesperson at the CFTC did not immediately respond to a request for comment.
Boiron believes that the CFTC’s action does not set a precedent, as no independent party, such as a court, has agreed with the agency. However, he added, “maybe the court will agree because no one holding the token will protect the Ooki DAO.”
Because the Ooki protocol is distributed around the world and cannot be shut down, a court action in favor of the CFTC could result in “the holders of tokens that the CFTC believes have made Nothing falsely (if they do not participate in governance) lose significant value in their tokens while the protocol continues to live and be available to be used by WE and non-US persons in a manner that the CFTC claims is against the law,” said Boiron.
Message for investors? Participating in a DAO can now mean more risks and potential liabilities.
