Examining the intersection of cryptocurrency and government Was this newsletter forwarded to you? Sign up here. |
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Welcome to State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. I’m your host, Nikhilesh De. You’re probably here because you signed up, but in case you're not a fan, you can unsubscribehere. Hey folks. I’m in San Francisco covering Circle’s Converge conference this week. Around? Say hi. But in the meantime, let’s talk about the CFTC and the sudden chill it has cast over the crypto world. — Nik |
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Interpreting the CFTC’s Lawsuit Against Ooki DAO |
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The Commodity Futures Trading Commission (CFTC) sued Ooki DAO, a decentralized autonomous organization, last week. The CFTC alleged Ooki DAO was offering leveraged and margin trading products without registering as a Futures Commission Merchant (FCM), a legal requirement in the U.S. |
The complaint is a dagger into the belief that decentralization is a defense against regulation. Admittedly, it’s not the first time we’ve seen U.S. regulators indicate that decentralization really isn’t a defense, but because of the way the CFTC has worded its complaint it seems especially concerning. The short version is that, in the CFTC’s view, every single voting participant in a DAO can and should be held individually liable for any illicit activity conducted by the DAO. |
If you missed this news last week, the slightly longer version of what happened is the CFTC settled charges with bZeroX and its founders Tom Bean and Kyle Kistner, alleging the company had illegally offered leveraged and margin trading products to U.S. persons without registering as a Designated Contract Market (DCM) or an FCM. I tweeted my read-through of the case – you can catch up on that thread on the link – but basically the CFTC said bZeroX offered products the regulator should be overseeing. Bean and Kistner offered to settle, paying a (paltry) $250,000 fine and promising not to break the law or CFTC rules again. The decentralized squiggle here is bZeroX converted from a service provided by a centralized company with two operators to a service provided by a DAO with many operators. The CFTC filed a complaint against the DAO (originally called bZx, now named Ooki), alleging basically the same things alleged against bZeroX. My interpretation of what happened next is that the CFTC, having found a settlement with these two intrepid individuals who were unwilling to be dragged into an expensive legal fight, saw the DAO as a natural extension of the company and felt that it had to bring similar charges. What’s more, because Ooki and bZeroX literally did the same thing, the CFTC didn’t really need to stretch to find its cause of action. “A key bZeroX objective in transferring control of the bZx Protocol (now the Ooki Protocol) to the bZx DAO (now the Ooki DAO) was to attempt to render the bZx DAO, by its decentralized nature, enforcement-proof. Put simply, the bZx Founders believed they had identified a way to violate the Act and Regulations, as well as other laws, without consequence … The bZx Founders were wrong, however. DAOs are not immune from enforcement and may not violate the law with impunity,” the complaint said. And it’s worth noting that, despite this edition’s headline, the decentralization or lack thereof of a DAO doesn’t seem to be a concern for this action. Rather, it’s the actual activities the DAO engaged in – i.e., the same activities bZeroX engaged in – that are the source of this lawsuit. Continue reading... |
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| (Bloomberg) South Korean officials told Bloomberg News that Interpol had issued a “red notice,” an international wanted poster, for Terra creator Do Kwon. Kwon responded by tweeting that he’s not trying to hide. |
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If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde. You can also join the group conversation on Telegram. See ya’ll next week! |
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