US CFTC shakes crypto industry after action against DAO
The US Commodity Futures Trading Commission (CFTC) has rattled the crypto community with an enforcement case against Ooki DAO, leaving market participants on edge and unsure of which protocol might be targeted next by regulators.
In the September 22 press release, the CFTC disclosed that it had issued an order to both file and settle charges against tokenized margin trading platform bZerox LLC (bZx) and its founders Tom Bean (Bean) and Kyle Kistner (Kistner).
The charges include unlawfully offering leveraged and margined retail commodity transactions in digital assets; engage in activities that only registered futures commission merchants (FCMs) can perform; and failed to adopt a customer identification program as part of a bank secrecy compliance program since 2019.
The CFTC also opened a federal civil enforcement action in the US District Court for the Northern District of California charging Ooki DAO – the DAO that took over management of bZx from its founders in August 2021 – for the same crimes. According to the CFTC, bZx will pay a penalty of $250,000.
“Margined, leveraged, or funded trading of digital assets offered to retail clients in the United States must occur on properly registered and regulated exchanges in compliance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures, as well as for DAOs, Gretchen Lowe, the CFTC’s acting director of enforcement, said in a statement.
The crypto community is pushing back against the act
However, the move has been met with backlash from the crypto community and even a commissioner of the CFTC. CFTC Commissioner Summer K. Mersinger published a dissenting opinion noting that the commission does not have the legal authority to enforce liability on DAO token holders based on their participation in governance votes.
Crypto advocates have also weighed in on the development. Executive Vice President and Chief Policy Officer of the Blockchain Association, Jake Chervinsky called the act “the most extreme example of regulation by enforcement in crypto history.”
Collins Belton, a managing partner at Brookstone PC, thought that action feels like the CFTC is looking to force regulatory abuse. Gabe Shapiro, general counsel at Delphi Capital, added that the CFTC’s positions are wrong and the action is much worse than SEC token issues.
The action, meanwhile, is just the latest enforcement action taken by a US regulator targeting the crypto industry. The US Treasury Department’s Office of Foreign Assets Control (OFAC) addition of crypto mixer protocol Tornado Cash to the list of specially designated entities also left the crypto community reeling as to which protocol could be next in line for regulation.
