Lawsuit against PoolTogether thrown out by US court

The defi community rallied behind PoolTogether by raising $1.4 million through a nonfungible token sale last year to support the platform’s legal defense. 

In a June 7 development, a judge in the United States dismissed a lawsuit against PoolTogether, determining that the federal court system was not the appropriate venue to address concerns regarding the decentralized finance startup.

Withdrawing his contributions

Back in 2022, the software engineer Joseph Kent lodged allegations against PoolTogether, accusing the decentralized finance platform of engaging in a conspiracy involving an illegal lottery.

Kent, who previously participated in Senator Elizabeth Warren’s 2020 electoral campaigns, claimed that he invested $12 and demanded compensation amounting to double the initial investment ($24), as well as reimbursement for legal expenses incurred during the litigation process.

However, one of the core features of PoolTogether is that participants always have a positive expected value, as they can withdraw 100% of their principal at any time. This approach would, theoretically, attracted users seeking an alternative way to save and potentially win rewards without risking their initial investment.

However, the recent lawsuit highlights potential legal implications that could impact not only PoolTogether but also the broader DeFi landscape.

In response, the defi community rallied against PoolTogether, arguing that conducting an illegal lottery violates state laws and raises concerns for users involved in defi projects.

Following this development, members of the community expressed their excitement over the decision. For many, this ruling has breathed new life into their nonfungible tokens (NFTs), as they now see them as having tangible utility.

Increasing regulations

The case raised by Joseph Kent brings attention to the regulatory considerations surrounding the operation of defi platforms and their compliance with state laws. The accusation of conducting an illegal lottery may prompt regulators to assess the legal framework within which defi projects operate. 

It is also worth noting that at the time, the defi startup raised $1.4 million by selling PoolyNFTs to fight against the lawsuit since many believed it to be an attack on the defi sector as a whole, drawing a parallel to the current case between the SEC, Binance and Coinbase, which has drawn together much of the broader crypto community.