A federal judge has ruled that a decentralized cryptocurrency collective, known as Ooki Decentralized Autonomous Organization (DAO), is liable for violating commodities exchange rules by running an unregistered trading platform. and will be required to pay a $643,542 fine, per the WSJ,.
The Ooki DAO, which operated on the Ethereum blockchain, allows users to invest and speculate on virtual currencies. The CFTC (Commodity Futures Trading Commission) argued that the protocol resembled a trading platform, qualifying it as an exchange under the Commodity Exchange Act.
State of California Judge William Orrick’s ruling in favor of the U.S. Commodity Futures Trading Commission (CFTC) provides a legal basis for regulators and private plaintiffs to sue DAOs. This ruling signals a growing trend in holding decentralized organizations accountable under existing laws.
Orrick determined that Ooki DAO qualified as an “unincorporated association” under California law and, consequently, as a “person” under the Commodity Exchange Act. Being recognized as a person means that the DAO can be held accountable for violating commodities exchange rules. However, the legal status of DAOs varies across different states, and while some states provide limited liability protection for unincorporated associations, others do not. More than likely, DAOs will move to where regulation is most favorable.
The practicality of enforcing the judgment against a DAO poses a significant challenge. DeFi protocols, including DAOs, aim to create autonomous financial systems governed by majority votes from members. While centralized exchanges like Binance and Coinbase have identifiable operators, DeFi protocols often have anonymous founders and members.
The recent ruling against Ooki DAO marks a significant step in the legal treatment of decentralized autonomous organizations. While providing a legal basis for regulators to hold DAOs accountable, the practicality of enforcement remains uncertain. It will be interesting to see if the fine will be paid, and by whom.
“The ruling against Ooki DAO is a new step in the evolution of the entire DAO idea,” said James Wester, Director of Cryptocurrency at Javelin Strategy & Research. “The default judgment against Ooki DAO may be difficult to enforce, since no individual was named in the suit, but it does establish that DAOs are liable as entities themselves.”
“‘Autonomous’ does not mean unregulated,” he added. “Where this could lead is members of DAOs—token holders or participants—being held collectively responsible for a DAO’s activities in the future. How courts and regulators deal with this concept, and truly hold DAOs accountable, will be interesting to watch.”