‘Fear’ May Be Keeping Ooki DAO From Mounting Defense Against CFTC

Time is running out for the DAO to respond to court filings in what could be a major test for crypto governance.

AccessTimeIconOct 11, 2022 at 12:38 a.m. UTC
Updated Oct 11, 2022 at 4:34 p.m. UTC

Ooki DAO, the first decentralized autonomous organization (DAO) dragged to court over alleged lawbreaking in the U.S., is struggling to muster a response to the Commodity Futures Trading Commission (CFTC) with just days to go before it risks automatically losing its case.

Fear that simply expressing their views could fuel a further legal crackdown may be keeping community members from voting to fund their own legal defense, community members and an observer told CoinDesk. The result: a decentralized crypto governance group whose members are skittish about defending themselves using the tools of crypto governance.

The investor collective’s members (Ooki DAO token owners) are accused of illegally running Ooki Protocol as an unregistered leveraged crypto exchange that does not collect customer data. Ooki is the decentralized successor to bZeroX, LLC, an equivalent centralized exchange whose founders have already settled their equivalent charges with the CFTC.

The CFTC is now trying to hold Ooki’s decentralized management – its DAO token holders – accountable for the platform’s alleged wrongdoing. In late September, it filed a complaint against Ooki token owners who have participated in governing the Ooki Protocol by using their tokens to vote in the DAO.

According to the fluid philosophies of decentralized crypto governance such a lawsuit shouldn’t be possible. When bZeroX’s founders gave Ooki DAO control of their platform in August 2021, they thought that community governance would “future-proof” the protocol from regulators, who wouldn't know who to sue. The CFTC disagreed and sued the whole community.

Culpability through participation may help explain why Ooki’s latest governance question on the “Future of Ooki DAO” has gotten zero traction. On Monday, a proposal to create a legal defense fund, and to block U.S. users from Ooki failed with zero votes either for or against.

“Probably people are afraid to vote at the moment,” said an Ooki DAO community member who goes by “Frank” on Telegram. “We will proceed with an onchain proposal and see how that goes.”

Their fear may be well-founded. According to attorney Nelson Rosario, who runs a crypto law practice, token holders may fear that by simply voting on Ooki DAO’s response to legal threats, they could get wrapped up in them.

A second go at the vote received three “yes” responses by press time. If that procedural measure passes, Ooki DAO will hold a binding vote on-chain, Frank said.

If it passes, the proposal pledges to use Ooki DAO’s treasury for legal fees of “any DAO members named in a complaint,” pursue a crowdfunded legal defense fund to protect other DAOs that catch regulators’ ire and allocate the treasury toward the continued operation of the DAO.

If this process is meant to yield a formal response to the CFTC, then the DAO is running short on time: the court’s deadline is by Friday.

Data website Nansen indicates that Ooki DAO has over $3 million in cash on hand, much of it in native tokens.

“I can assure you the Ooki DAO contributors will continue developing our protocol since we have enough funds available,” Frank said.


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Danny Nelson

Danny is CoinDesk's Managing Editor for Data & Tokens. He owns BTC, ETH and SOL.

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