According to a new regulatory action by the Commodity Futures Trading Commission (CFTC), decentralized autonomous organizations (DAOs), as well as the millions of individuals who own DAO governance tokens that are used to make decisions on various networks, may be subjected to the CFTC oversight.
In the past year, several cryptocurrency projects have converted themselves into DAOs in an effort to escape regulatory scrutiny. These DAOs are organizations run by the top holders of unique tokens and several cryptocurrency platforms and apps are not adhering to many of the regulations already in place for the financial sector, including one that requires KYC verification to confirm customer identities.
On Thursday, September 20, 2022, CTFC filed and resolved charges against respondent bZeroX, LLC (bZeroX) and its owners, Tom Bean and Kyle Kistner, imposing a $250,000 fine for providing leveraged and margined retail commodities transactions in crypto assets; participating in activities that can only be carried out by licensed futures commission merchants (FCM), and failing to put in place a customer identification system.
At the same time, the Ooki DAO, a decentralized project that bZeroX transformed into last year, was charged by CFTC with violating the same laws and was held accountable as an “unincorporated association” in a federal civil enforcement action brought to the U.S. District Court for the Northern District of California.
The CFTC’s action holds Individuals that participated in the Ooki protocol’s decision-making using their unique governance tokens responsible for the law violations.
This action by CTFC might have far-reaching consequences for the nearly 5,000 DAOs, of which about 2,300 have assets worth more than $1 million, according to the DeepDAO tracker.
While many believe the CTFC’s action doesn’t set a precedent as no court is yet to agree with the agency, Hilary Allen, a law professor at American University, stated that CTFC has established a standard for “seeing through the decentralization rhetoric.”