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CFTC

CFTC Files Its First Case Against A DAO, bZeroX, For Operating Illegally

Kent Tenix
by Kent Tenix
3 years ago
·
Posted in DAO
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

The U.S. Commodity and Future Trading Commission (CFTC) has filed a case against an autonomous decentralized organization (DAO) protocol, bZeroX, and its founders, Tom Bean and Kyle Kistner, for operating illegal activities. The Commission also penalized the platform for $250,000 and ordered it to be ceased and desist from the industry.

As per the CFTC’s filing on September 22, the DAO platform violated implied regulations and facilitated leveraged among margined retail commodity transactions outside the law for a time space between June 2019 to August 2021. Notably, it is the first case CFTC pursues against a DAO. 

Related Reading: Central Bank Of Russia Approves Bitcoin, Ethereum, Others, For Cross-Border Payments

The allegations include bZeroX illegally performing activities only allowed to licensed merchants from CFTC, and it margined and leveraged crypto outside the legal boundary. Moreover, CFTC charged the DAO for not obliging with Bank Secrecy Act that requires merchants to feature Know-Your-Customer (KYC) rule.

Commission Similarly Charges Ooki DAO 

OokI DAO, a similar platform, and successor to the bZeroX, also faces the same prosecutions by CFTC for infringing the same regulations as its sister company, bZeroX, did. Now the authority for settlement seeks a total ban on the trading and leveraging activities of defendant platforms, restitution, disgorgement, civil monetary penalties, and other injunctions.

Understandably, as it is the first lawsuit filed against a DAO, it unveils the vulnerabilities of other DAO platforms.

CFTC expressed his thoughts on it in a statement;

“Margined, leveraged, or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures as well as to DAOs.”

BTCUSD
Flagship coin BTC is currently trading below $19,000. | Source: BTCUSD price chart from TradingView.com

CFTC Plans To Become Major Regulatory For Crypto Industry

In November 2021, the bZeroX DAO suffered an attack that nearly lost $55 million of users’ funds in DeFi coins and stablecoins. Consequently, investors prompted a class action lawsuit against the platform and alleged it didn’t maintain security. Nevertheless, CFTC keeps it neutral on the hack in the latest case.

The CFTC’s lawsuit against the first DAO protocol comes a week after the authority participated in two Senate Agriculture Committee hearings to discuss a new regulatory framework that SEC’s Gary Gensler also joined. Head of the CFTC, Rostin Behnam, expressed at the time that it has already been preparing to become the significant regulatory authority and financial watchdog over the crypto ecosystem. 

Related Reading: Bitcoin Bearish Signal: Old Supply On The Move Again

Interestingly, criticism has come to appear immediately from the DAO community on this move of CFTC. Miles Jennings, head of decentralization and council at a prominent venture capital firm, Andreessen Horowitz, went on to say;

“It’s that the CFTC is trying to apply the CEA to a protocol and DAO at all. The CEA should be applied to the frontend and it’s operators that facilitated access for U.S. persons. Applying compliance burdens to protocols and DAOs is the equivalent of holding the creators of email liable because criminals can use it to commit crimes.”

Featured image from Pixabay and chart from TradingView.com
Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Kent Tenix

Kent Tenix

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Kent is a talented freelance writer and journalist who creates insightful and thought-provoking content. With over 5 years of experience, she has honed her skills and established herself as an expert in her field. Kent is especially passionate about in-depth reporting and investigative journalism. She thoroughly researches every topic and story she covers to provide readers with comprehensive information and perceptive analysis. Whether she's reporting on politics, business, technology, or culture, Kent prioritizes accuracy, nuance, and integrity. Her goal with every piece is to inform readers and inspire meaningful conversations and positive change. Kent enjoys traveling, photography, and spending time with her family when she's not tirelessly conducting interviews or poring over data. She hopes to continue using her writing to enlighten and engage audiences on issues that matter.

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