After a federal civil enforcement case against Ooki DAO, a decentralized autonomous organization, the Commodities Futures Trading Commission was criticized by the community for digital asset trading violations.
The CFTC released a Sept. 22 statement stating that it had simultaneously filed and settled charges against Tom Bean and Kyle Kistner, founders of bZeroX, for their involvement in illegally offering leveraged and marginalized retail commodity transactions in digital asset.
The community is agitating over a civil enforcement action against Ooki DAO, bZeroX’s associate Ooki DAO, and its members. It claims it operated the same software protocol that bZeroX, after it was given control, and therefore “violating the same laws” as the respondents.
A number of crypto lawyers have expressed dismay at the enforcement action, as well as a CFTC commissioner concerned that it could set a precedent for unfair regulation.
Summer Mersinger, CFTC commissioner, stated that she supports the CFTC’s charges of the bZeroX founders but that the enforcement body is stepping into unknown legal territory by taking action against DAO members who voted on governance plans.
“I disagree with the Commission’s approach to determining liability for DAO token holder based on their participation at governance voting for a variety of reasons.
She stated that this approach is blatant “regulation by enforcement” because it sets policy on new definitions of standards and standards, which were never previously articulated by the Commission staff or made public for comment.
Jake Chervinsky is a lawyer and head for policy at the U.S. Blockchain Association. He said that the enforcement action was “the most egregious instance” of regulation by enforcement in crypto history. He made comparisons between the U.S. Securities and Exchange Commission and CTFC and noted that:
“We have complained at length about how the SEC abuses this tactic but the CFTC put them to shame.” It’s very disappointing to see the CFTC ruin its own reputation among those who care about crypto’s future in the United States. This is especially true as it attempts to present itself to Congress as the agency that can regulate “digital commodities trades.”
— Jake Chervinsky (@jchervinsky) September 22, 2022
DeFi Education Fund added that the CFTC charges offer a gloomy outlook for those trying to invent via DAOs.
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It stated that “Lawmaking through enforcement” stifles innovation in America, and that today’s actions will sadly discourage anyone from participating in DAOs not only in development but also in participation.”
Take away the big picture themes: 1. What control does a Dao have over the protocol? If it is too much, it might be the counterpart to the protocol transactions. Perhaps decentralization of control over protocol and not voting to control protocol are what matters. /11
— Drew Hinkes (@propelforward) September 22, 2022
The charges include retail leverage and margin trading, illegally offering retail leverage, and engaging in activities that only registered futures merchants (FCMs) can perform. Also, failing to incorporate a customer identification programme under the Bank Secrecy Act.
The CTFC stated that Bean and Kistner had indicated they wanted to transfer ZeroX to the Ooki DAO in order to avoid any crackdowns in the grey area of decentralization.
The CFTC stated that “By transferring control of bZeroX to a DAO bZeroX founders claimed to bZeroX members the operations operation would be enforcement-proof — allowing Ooki DAO the CEA and CFTC regulations without impunity.”