Crypto Venture Capital Fund Paradigm Also Wants CFTC to Serve Ooki DAO's Members

Paradigm has become the third entity to try and join the Ooki DAO case, arguing the CFTC should identify and serve its lawsuit against individual members rather than the DAO as a whole.

AccessTimeIconOct 17, 2022 at 7:29 p.m. UTC
Updated Oct 17, 2022 at 8:14 p.m. UTC
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Crypto venture capital fund Paradigm Operations has asked a federal court for permission to join two other groups in arguing that the Commodity Futures Trading Commission (CFTC) should serve the members of a decentralized autonomous organization (DAO) directly, rather than through a generic website help portal.

Paradigm filed for permission to join Ooki DAO's case on Monday, arguing in a motion that the CFTC's view that any voting token holder who participated in the DAO's governance process is liable may threaten DAOs in general. The company is hoping to file an amicus, or friend of the court, brief and included its proposed amicus filing.

The CFTC filed suit against Ooki DAO last month in the U.S. District Court for the Northern District of California, alleging the DAO was violating federal commodities laws by offering U.S. residents access to unregistered leveraged and margin crypto trading products. The DAO has since geofenced users whose IP addresses are located within the U.S., but has not responded to the CFTC in court as of press time.

While the crypto industry has not tried to defend against the actual allegations – that the DAO, with its predecessor company, bZeroX, offered unregistered products to U.S. customers – it has collectively expressed concern about how the CFTC has gone about trying to bring a case against the DAO. Specifically, lawyers are concerned that the CFTC has painted with a broad brush by trying to hold each voting token holder individually liable, as well as by trying to serve the entire DAO by posting the lawsuit in a web portal and on a forum.

"A key characteristic of DAOs is that unrelated, anonymous people come together to decide whether to adopt ad hoc proposals about how to run the underlying protocol. A person might choose to participate once or many times, but the community of people making decisions on the DAO is fluid, ever-changing and different for each proposal on which they vote," Paradigm's filing said Monday.

Trying to define all voting token holders as the members of the same association "threatens to seriously distort the law," the crypto investment fund claimed.

"The Commission’s action appears designed to produce a default judgment. By admitting that it has not located any individual token holders in the 'Ooki DAO' while threatening to hold token holders jointly and severally liable, the Commission has created a strong disincentive for anyone to appear and defend this action. And indeed, no defendant has yet appeared," the filing said in the proposed amicus brief.

LeXpunK Army and the DeFi Education Fund have already filed for permission to add similar amicus briefs. LeXpunK's brief is due in court by the end of the day.

While District Judge William Orrick had previously ruled that the CFTC could serve the DAO through the web portal, he allowed the two parties to join the case, setting a hearing in November to allow the different parties to present their arguments.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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