The Commodities Futures Trading Commission (CFTC) has drawn strong criticism from the community after filing a federal civil enforcement action against members of the decentralized autonomous organization Ooki DAO for digital asset trading violations.
In a Sept. 22 release, the CFTC said it had filed and simultaneously settled charges with the founders of the decentralized trading platform bZeroX, Tom Bean and Kyle Kistner, for their role in “illegally offering leveraged and marginalized trading commodities in digital assets.”
However, the community has made a fuss about a concurrent civil enforcement action against bZeroX’s associate Ooki DAO and its members, which it is alleged used the same software protocol as bZeroX after taking control of it, thus “violating the same laws as the respondents.”
The enforcement action has sparked the ire of a number of crypto lawyers and even a CFTC commissioner with concerns that it will set an unfair regulatory precedent.
In a dissenting statement on Sept. 22, CFTC Commissioner Summer Mersinger noted that while she supports the CFTC’s charges against the bZeroX founders, the enforcement agency is treading uncharted legal territory when it takes action against DAO members who voted on board proposals.
“I disagree with the Commission’s approach to determining liability for DAO token holders based on their participation in governance voting for a number of reasons.”
“This approach is blatant ‘regulation by enforcement’ by setting policies based on new definitions and standards that have never been previously formulated or made public by the Commission or its staff,” she said.
Jake Chervinsky, attorney and chief of policy at the US Blockchain Association on Twitter said the enforcement action is “perhaps the most egregious example” of enforcement regulation in the history of crypto, drawing comparisons between the US Securities and Exchange Commission and the CTFC , note that:
“We’ve complained extensively about the SEC’s abuse of this tactic, but the CFTC has put them to shame.”
It is deeply disappointing to see the CFTC damage its own reputation in this way among those who care about the future of crypto in the United States, especially at a critical juncture as it presents itself in Congress as the appropriate agency to “put up digital assets.” goods trade”.
— Jake Chervinsky (@jchervinsky) September 22, 2022
The DeFi Education Fund too heralded by noting that the cost of the CFTC also presents a bleak prospect for people trying to innovate through DAOs.
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“‘Law through enforcement’ is stifling innovation in the US, and today’s action will sadly further discourage any American person from not only developing DAOs, but also *merely participating* in DAOs,” it wrote.
Great photo themes to take with you: 1. How much control does a Dao have? if it is too much, it may be the counterparty to the transactions offered by the protocol; perhaps decentralization of protocol control, not voting for protocol control, is what matters. /11
— Drew Hinkes (@propelforward) September 22, 2022
The list of charges includes illegally providing retail leverage and margin trading; “engage in activities that only registered futures commission traders (FCM) can engage in;” and failure to include a customer identification program under the Bank Secrecy Act.
The CTFC also outlined that Bean and Kistner indicated they wanted to transfer bZeroX over the Ooki DAO as part of a move to prevent a crackdown in the gray area of decentralization.
“By transferring control to a DAO, the founders of bZeroX praised members of the bZeroX community that the operations would be enforcement-proof – allowing the Ooki DAO to violate CEA and CFTC regulations with impunity,” the statement said. CFTC.