The Commodities Futures Trading Commission (CTFC) (1) received harsh criticism from the community after bringing a federal civil enforcement action against the decentralized autonomous organization Ooki DAO members for offenses related to digital trading assets.
The inventors of the decentralized trading platform bZeroX, Tom Bean and Kyle Kistner (2), were accused of illegally offering leveraged and margined retail commodities trades in digital assets, according to the CTFC's September 22 press release.
The community, however, made a scene over the concurrent civil enforcement action against Ooki DAO (3), a company associated with bZeroX, and its members. The community claims that Ooki DAO operated the same software protocol as bZeroX after it took control of it and, as a result, violated the same laws as the respondents.
Numerous cryptocurrency lawyers and the CFTC commissioner were also outraged by the enforcement action because they feared it would create an unfavorable regulatory precedent.
While she supports the CFTC's charges against the bZeroX founders, CFTC commissioner Summer Mersinger stated through this dissenting statement on September 22 that the enforcement body is entering unknown legal ground when taking action against DAO members who voted on governance proposals.
In addition, she expressed disapproval of the Commission's methodology for assessing DAO token holders' guilt based on their participation in governance voting for various reasons.
By establishing policy based on novel definitions and standards that have never been stated by the Commission or its staff and have not been made available for public praise, it can be said that this method constitutes blatant regulation by enforcement.
The enforcement action may be the most egregious instance of regulation by enforcement in the history of cryptocurrencies, according to Jake Chervinsky, a lawyer and the head of policy at the U.S. Blockchain Association (4). He also stated that this could lead to comparisons between the CTFC and the U.S. Securities and Exchange Commission.
He cited that they have long complained about the SEC abusing the tactic but that the CFTC has shamed them and expressed disappointment at seeing the CFTC's reputation suffer among those who are enthusiastic about the future of cryptocurrencies in the United States at a crucial time when it is pitching itself to Congress as the appropriate agency for regulating digital commodity trades.
The DeFi Education Fund added its two cents, stating that the CFTC accusations present a bleak outlook for those attempting to innovate through DAOs and that lawmaking through enforcement stifles innovation. These efforts will further deter US citizens from participating and just developing.
According to Drew Hinkes, the control power of the DAO is being questioned. If it is excessive, it only affects the counterparty to the transactions made possible by the protocol. Decentralized control over the protocol is more important than overvoting to control the protocol.
Charges include failing to implement a customer identification scheme by the Bank Secrecy Act and illegally offering retail leverage and margin trading that participates in activities only authorized registered futures commission merchants FCM can undertake (5).
As part of a move to avoid crackdowns in the murky world of decentralization, Bean and Kistner said they wanted to transfer bZeroX over to the Ooki DAO, according to the CTFC. By doing so, the founders of bZeroX boasted to their community members that the operations would be enforcement-proof, allowing Ooki DAO to break the rules of the CFTC and CEA with impunity.