Regulation Be DAOmned

For the first time, a decentralized autonomous organization (DAO) has been sued by the CFTC.

• Yesterday, the Commodity Futures Trading Commission (CFTC) revealed a $250,000 fine and a subsequent settlement reached with bZeroX, LLC and its founders, Tom Bean and Kyle Kistner.
• The bZx protocol is a decentralized lending project that has a past peppered with flaws in the code, resulting in numerous successful attacks perpetrated by bad actors.
• The lawsuit filing targeted Ooki DAO which was used to govern the protocol in 2021. It looks as if the token holders who participated in protocol governance may be included in the suit.
• The suit claims Ooki DAO “was an attempt to render the bZx DAO, by its decentralized nature, enforcement-proof.”
• The CFTC went on further to highlight that “DAOs are not immune from enforcement and may not violate the law with impunity.”
• One CFTC commissioner, Summer Mersinger, issued a dissent, stating her objection to governance voters being included, “I cannot agree with the Commission’s approach of determining liability for DAO token holders based on their participation in governance voting.”

This hard-line approach to enforcement signals the CFTC’s willingness to enforce laws across crypto. The most important implication of this development remains to be seen, but the extent to which DAO participants are declared culpable in the future will be closely watched.