On June 9, 2023, the Commodity Futures Trading Commission (CFTC) declared victory in a lawsuit against Ooki DAO, a decentralized autonomous organization. According to the CFTC, the judge’s ruling that the Ooki DAO is a “person” under the Commodity Exchange Act sets a new legal precedent. This decision could be quite significant as it’s the first ruling to establish the legal status of DAOs and their accountability under the law.
CFTC Lawsuit Could Define Legal Status of DAOs in the United States
According to current statistics, there are 12,745 decentralized autonomous organizations (DAOs) with treasuries holding over $20 billion in crypto assets. Since the infamous failure of the first DAO in 2016, which caused a rift in the Ethereum community, DAOs have been a hot topic. Many supporters, however, have assumed that DAOs are immune to legal repercussions, given their decentralized and autonomous nature, and the fact that they’re made up of numerous market participants.
The CFTC’s recent victory in the lawsuit against Ooki DAO, however, could be the beginning of the end for the notion that DAOs are immune to legal action. It all started in September 2022 when Ooki DAO was accused by the CFTC of breaking the Commodity Exchange Act. The DAO was allegedly operating as a futures commission merchant (FCM) from June 1, 2019, to around August 23, 2021, and was also accused of facilitating illegal margined, and leveraged retail commodity transactions.
Despite the accusations, Ooki DAO remained silent and failed to respond to the lawsuit’s deadline. As a result, the CFTC was poised to win the case by default. Judge William H. Orrick entered the default judgment order on June 9. The DAO was found guilty of operating an illegal trading platform and acting as an FCM, resulting in a civil monetary penalty of $643,542.
The CFTC was quick to point out that the judge’s ruling that the DAO is a “person” under the Commodity Exchange Act is a game-changer. In a press release, the CFTC emphasized the significance of the decision, stating that “the court held that the Ooki DAO is a ‘person’ under the Commodity Exchange Act and thus can be held liable for violations of the law. The court then held that the Ooki DAO did, in fact, violate the law as charged.”
“The founders created the Ooki DAO with an evasive purpose, and with the explicit goal of operating an illegal trading platform without legal accountability,” CFTC Division of Enforcement director Ian McGinley said. “This decision should serve as a wake-up call to anyone who believes they can circumvent the law by adopting a DAO structure, intending to insulate themselves from law enforcement and ultimately putting the public at risk.”
The regulatory landscape in the U.S. in 2023 has been nothing short of chaotic. From commodities to securities, financial watchdogs have been cracking down on a wide range of industries. The list of regulators involved is extensive, including over a dozen banking and securities regulators from various states, the New York Attorney General’s Office, the SEC, and the CFTC.
The classification of crypto assets as both commodities and securities has only added to the confusion, with regulators also targeting products associated with staking, lending, and interest-bearing accounts. With so many accusations, lawsuits, and projects under scrutiny, it’s starting to feel like a regulatory warzone out there. As the regulatory crackdown on crypto continues, supporters of the digital currency are left wondering: who will be the next target?
What are your thoughts on the lawsuit between the U.S. commodities regulator and the decentralized autonomous organization? Share your thoughts and opinions about this subject in the comments section below.