U.S. CFTC Shakes Crypto Industry After Action Against DAO – Who’s Next?

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The U.S. Commodity Futures Trading Commission (CFTC) has rattled the crypto community with an enforcement action it brought against Ooki DAO, leaving market participants fuming and unsure of which protocol could be targeted next by regulators.

In the September 22 press release, the CFTC revealed that it had issued an order to both file and settle charges against tokenized margin trading platform bZerox LLC (bZx) and its founders Tom Bean (Bean) and Kyle Kistner (Kistner).

The charges include illegally offering leveraged and margined retail commodity transactions in digital assets; engaging in activities only registered futures commission merchants (FCMs) can perform; and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program since 2019.

The CFTC also opened a federal civil enforcement action in the U.S. District Court for the Northern District of California charging the Ooki DAO – the DAO that took over management of bZx from the founders in August 2021 – with the same crimes. According to the CFTC, bZx will pay a $250,000 penalty.

“Margined, leveraged, or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures as well as to DAOs,” Gretchen Lowe, the CFTC’s acting director of enforcement, said in a statement.

Crypto community kicks back against the action

However, the action has been met with pushback from the crypto community and even a Commissioner of the CFTC. CFTC Commissioner Summer K. Mersinger published a dissenting statement remarking that the commission does not have the legal authority to enforce liability on DAO token holders based on their participation in governance voting.

Crypto advocates have also weighed in on the development. The executive vice president and head of policy at the Blockchain Association, Jake Chervinsky called the action “the most egregious example of regulation by enforcement in the history of crypto.”

Collins Belton, a managing partner at Brookstone P.C., opined that the action feels like the CFTC is looking to force regulatory overreach. Gabe Shapiro, the general counsel at Delphi Capital, added that the CFTC’s positions are wrong and the action is much worse than SEC token issues.

The action, meanwhile, is only the latest enforcement action taken by a U.S. regulator targeting the crypto industry. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) addition of crypto mixer protocol Tornado Cash to its list of specially designated entities also left the crypto community shaken as to which protocol could be next in line for regulation.

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