The cryptocurrency industry is arguing the U.S. Commodity Futures Trading Commission (CFTC) has overstepped its authority after it filed charges against a decentralized autonomous organization (DAO) as part of proceedings against the blockchain software protocol bZeroX.
The CFTC fined bZeroX and its founders, Tom Bean and Kyle Kistner, $250,000 for offering “illegal, off-exchange digital-assets trading” without registering and complying as a futures commission merchant, the CFTC said in a press release last Thursday. Further, the CFTC filed a civil enforcement action charging the Ooki DAO as a “bZeroX successor.”
“The CFTC’s [bZeroX] enforcement action may be the most egregious example of regulation by enforcement in the history of crypto,” said a Friday tweet by Jake Chervinsk, executive vice president and head of policy at Blockchain Association, a crypto industry trade group.
Chervinsk’s language echoed that of Summer K. Mersinger, a CFTC commissioner that opposed the charges against the Ooki DAO.
In a dissenting statement filed Thursday, she too argued the charges are “regulation by enforcement,” setting policy based on new definitions and standards never before outlined by the CFTC. “The commission’s approach in these actions will have public policy implications that extend far beyond this particular settlement and lawsuit,” wrote Mersinger.
The CFTC is regarded as the preferred cryptocurrency regulator by the industry, which has generally argued that some cryptocurrencies more resemble commodities than securities that would fall under the tougher rules of the Security Exchange Commission. However, Chervinsk says CFTC has hurt its reputation among crypto advocates. “We’ve complained at length about the SEC abusing this tactic, but the CFTC has put them to shame,” he said.
The CFTC’s complaint argued that bZeroX transferred control of its protocol to its DAO in August 2021, using it to operate exactly as bZeroX, thus violating the same laws. The agency also took issue with founders Bean and Kistner allegedly stating that the DAO distinction made the organization and their actions “enforcement-proof.”
Ooki DAO, according to the CFTC, was an unincorporated association in which Bean and Kistner were actively participating. “DAOs are not immune from enforcement and may not violate the law with impunity,” the CFTC wrote in their complaint.
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