In a case that has roiled the crypto community and triggered a dissent from one its own officials, the U.S. Commodity Futures Trading Commission (CFTC) brought an enforcement action yesterday that challenges fundamental tenets of decentralized finance.
On Sept. 22, the regulator alleged in a lawsuit that a DAO called Ooki DAO engaged in activities that only regulated entities called futures commission merchants (FCM) can perform.
The DAO illegally offered leveraged and marginal retail commodity transactions in digital assets, which are derivatives, and agreed to pay a $250,000 penalty, the CFTC said.
The commission also named the venture’s founders, Tom Bean and Kyle Kistner, in the suit.
Internal Rebuke
Yet in an unusually sharp-elbowed rebuke, Commissioner Summer Mersinger broke ranks with her five fellow commissioners and said the action wasn’t supported by the Commodity Exchange Act, the law that regulates derivatives inssuance, and amounted “regulation by enforcement.”
“I cannot agree with the Commission’s approach of determining liability for DAO token holders based on their participation in governance voting for a number of reasons,”
Mersinger said in a statement. “While I do not condone individuals or entities blatantly violating the [law] or our rules, we cannot arbitrarily decide who is accountable for those violations based on an unsupported legal theory amounting to regulation by enforcement while federal and state policy is developing.”
Even so, the action advances the Feds’ push to force crypto firms to register their offerings as securities or investment contracts.
Gary Gensler, the chair of the U.S. Securities and Exchange Commission, has long argued that cryptocurrencies are not exceptional instruments “outside the perimeter” of securities laws.
Last week, he suggested that Proof of Stake rewards for validators may need to be registered as securities.
The CFTC’s actions suggest that calling an entity a DAO, or invoking token-based voting as part of an organization’s decision-making process, doesn’t necessarily protect that entity from the legal responsibilities of a traditionally regulated institution.
Jake Chervinsky, the executive vice president and head of policy at the Blockchain Association, is critical of the absence of crypto-specific legislation developed by U.S. lawmakers.
Collins Belton, managing partner at Brookstone P.C. said "I’m not even saying all of their arguments are bunk, but they’re likely getting away with a ton of overreach by forcing this type of settlement imo.”
Attacks from Authorities
Now authorities have strated to attack crypto new concept, newly created govenance structure and value.
Whatever reason they have blameing crpyto with, I think it doesn't matter much.
This sort of challenge would happen continuously and irreguraly. There may be some unknown reasons that align with political or symbolic actions.
It should be required fro crypto devs and investors to manage crypto or any relevant concept or value pretending to align with traditinal regulation or value at least. Govenement or any traditional value seekers need time to accept something new and they also should be educated.
And with many points, crypto side may be wrong not having enough amount of challenge yet. Crypto should and will be validated thorugh all this process.