The Dichotomy of Decentralization
How a recent set of lawsuits open up practical and potentially existential questions facing the web3 industry.
This is the first in a series of DAOYOU Review articles exploring the potential impacts a federal regulator’s enforcement action against a DAO could have on the wider web3 industry. This initial installment will provide an overview of the case at hand, and provide an outline of the upcoming segments. Over the next several weeks we will expand each element individually and explore the potential impacts in more depth. You are encouraged to participate by using the questionnaire at the end of the posts to provide your input, insight, and any questions brought up by the article. First, let’s start with a brief look at the enforcement action and why it is so important for the future of web3.
On September 22, 2022 the Commodity Futures Trading Commission (CTFC), filed two lawsuits against the founders of BzX protocol and Ooki DAO for:
“illegally offering leveraged and margined retail commodity transactions in digital assets; engaging in activities only registered futures commission merchants (FCM) can perform; and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program, as required of FCMs”.
This action in and of itself is nothing particularly novel or out of place for the CTFC. However, in filing this action against a DAO, the CTFC is asserting that all voting members of the DAO are individually responsible for any legal repercussions that the organization is charged with (imagine charging individual shareholders of a company for the criminal actions of the company). The CTFC has asserted this power over the DAO members because they consider the DAO an unincorporated association, a type of business entity that does not have the same legal protections for members/shareholders as LLCs or corporations. The legal implications to members of a DAO that has not registered as a “traditional” business entity, being designated as an unincorporated association by default, as well as what the members could have or should have done to avoid it, brings up some fundamental issues that are at the core of the web3 identity.
These implications will be the focus of the web3 Snapshots over the next several weeks. Below is a preliminary outline of the subjects that will be covered, some resources to get you started on research should you decide to DYOR (Do Your Own Research), and a community comment form you can use to provide your input and ask questions.
The case at hand
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A simplified, but in-depth overview of:
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CTFCs regulatory role.
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Ooki DAO: what it says it does, and why the CTFC says that was wrong.
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Possible repercussions to DAO members and organizations resulting from this case.
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D-A-O, or D-O-A
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Exploring the inherent tension between decentralization, autonomy, and organization in DAOs.
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Exploring a DAOs exposure to and protection from legal liability.
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What’s a dao to do (proposed compromises or solutions to protect members while staying true to web3 principles).
The battle between “right” and “reality”
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Too many cooks in the kitchen
- Ambiguity in regulatory rules and the agencies who are in charge of enforcing them.
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Criminalizing code
- Where does the line between passive code end and criminal conduct begin?
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Community conflict
- Differing opinions in the web3 space are growing over the “reality” of the situation, and what is the “right” course of action to take.
Call to action
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Throughout these explorations, we will be soliciting community input on the issues as well as the solutions.
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We will use this opportunity to curate and highlight the trending opinions and suggestions provided by the community regarding what can and should be done about the issues raised in these explorations.
Resources
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**CTFC press release **
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Additional media perspectives:
Community Comment Form
Use the form below to provide input into your thoughts on this matter. We will select certain comments to include in our future analysis and follow-ups!