Is it illegal for regulators to finally start on-chain governance on DAO?

Yesterday, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit in the U.S. District Court for the Northern District of California against Ooki DAO, the organization that operates the Ooki Protocol (formerly bZx Protocol), and fined Ooki DAO $250,000.

The Ooki protocol allows users to provide margin (collateral) for opening leveraged positions, the ultimate value of which is determined by the price difference between the two digital assets between when the position is opened and when the position is closed. The Ooki protocol claims to provide users with the ability to engage in these transactions in a decentralized environment, i.e. without a third-party intermediary holding custody of user assets.

The CFTC has accused the transactions of being illegal because they must be conducted on designated contract markets. In addition, Ooki DAO operates illegally as an unregistered futures trading institution by soliciting and accepting customer orders and conducting retail commodity transactions with customers, and accepting money or property (or providing credit in lieu of) to secure these transactions. Ooki DAO also failed to adopt a customer identification scheme as part of a Bank Secrecy Act compliance program as required by futures trading houses.

The CFTC’s fine holds that Ooki DAO is an unincorporated organization responsible for violations of the U.S. Commodity Exchange Act and CFTC regulations. This penalty has caused heated discussions among many crypto people. BlockBeats made some sort of views on social media platforms from Will Papper, founder of the investment DAO management platform Syndicate:

The CFTC claims that all participants in the DAO governance can be held accountable for the actions of the DAO.

The CFTC claims that all participants in the DAO governance can be held accountable for the actions of the DAO. This is a terrible precedent and means both voters and multi-signature participants of on-chain governance are responsible, but on-chain governance spreads the responsibility across more people.

For years, it has been claimed that multisig participants have liability risks, while on-chain governance does not. This view, while questionable, is based on the assumption that if enough participants participate in sufficiently decentralized governance, then no individual will be held accountable for the actions of the DAO.

A (more pessimistic) answer is that both on-chain governance and multisig are unincorporated organizations with unlimited personal liability . This is based on stronger legal theory and is the view of many lawyers, although most do not believe it can happen.

In this more pessimistic view , everyone involved could be held accountable if the DAO did something for which it could be held liable. For multi-signature, it is the signer. For on-chain governance, it is the voters.

Yes, you will be held accountable for voting on governance proposals. And according to the CFTC’s interpretation, governance participants are personally responsible for voting.

Here is a dissent to their decision that on-chain governance has not protected the Ooki DAO.

Posted by:CoinYuppie,Reprinted with attribution to:
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