Members of the cryptocurrency industry are riling up against the U.S. Commodity Futures Trading Commission (CFTC) after the agency filed a civil enforcement action against Ooki DAO as part of its proceedings against the blockchain software protocol bZeroX.
Regulatory Crackdown on Ooki DAO
According to an official press release published last Thursday. the CFTC has issued a fine of $250,000 to Tom Bean and Kyle Kistner, founders of the bZeroX blockchain software protocol, for offering “illegal, off-exchange digital-assets trading”. The CFTC has also filed a civil enforcement action accusing the Ooki DAO of being a “bZeroX successor.”
Backlash against the CFTC
The charges represent the CFTC’s first filed case against a Decentralized Autonomous Organization (DAO) and have rallied up both members of the cryptocurrency community and even representatives of the CFTC. For example, Jake Chervinsk, executive vice president and head of policy at Blockchain Association, tweeted:
“The CFTC’s bZx enforcement action may be the most egregious example of regulation by enforcement in the history of crypto. We’ve complained at length about the SEC abusing this tactic, but the CFTC has put them to shame.”
CFTC commissioner Summer Mersinger has criticized the CFTC’s ruling in many aspects. In a dissenting statement made on Thursday, the commissioner noted that while she supports the agency’s charges against the bZeroX founders, she does not support the actions being undertaken against Ooki DAO, both for ruling by enforcement and “disincentivizing good governance”. She stated:
“This approach arbitrarily defines the Ooki DAO unincorporated association in a manner that unfairly picks winners and losers, and undermines the public interest by disincentivizing good governance in this new crypto environment.”
The case against Ooki DAO
Having transferred control of bZeroX’s blockchain protocol to the Ooki DAO and stating that the action would make the initiative “enforcement-proof”, founders Bean and Kistner have garnered the ire of the regulating body, who in its complaint states that “DAOs are not immune from enforcement and may not violate the law with impunity,” Chairman Rostin Behnam further stated:
“Today’s actions demonstrate the CFTC’s commitment to aggressively pursuing individuals and their operations who purposefully seek to evade regulatory oversight at the expense of retail customers.”
While it is true that Bean and Kistner transferred control of the protocol back in August 2021, allowing it to operate in the same illegal manner as bZeroX, the CFTC has defined the Ooki DAO as those holders of Ooki tokens that have voted on business-related governance proposals and has held Bean and Kistner liable for violations of the CEA and CFTC rules for falling under this category.
According to CFTC commissioner Summer Mersinger, “there is no provision in the CEA that holds members of a for-profit unincorporated association personally liable for violations of the CEA or CFTC rules committed by the association based solely on their status as members of that association.” As so, it seems the CFTC may have overstepped its bounds in its complaint against Ooki DAO.