Are DAOs a person? The Ooki DAO Case

Summary

• A US District Court granted a default judgment against Ooki DAO, a decentralized autonomous organization charged with three violations of the Commodity Exchange Act (CEA).

• The judgment requires Ooki DAO to pay a civil monetary penalty of $643,542, order permanent trading and registration bans, and enjoins any further violations of the CEA by the Ooki DAO.

• The court held that the Ooki DAO is a “person” under the CEA and thus can be held liable for violations of the law. This decision causes concern about the liability risks and thus viability of participating in DAOs (at least in the US).

The Ooki DAO Case: A Landmark Decision

In a landmark decision, the US District Court for the Northern District of California granted the Commodity Futures Trading Commission (CFTC) a default judgment against Ooki DAO, a decentralized autonomous organization (DAO) that the CFTC charged with three violations of the Commodity Exchange Act (CEA) [1 , 4 ].

The Ooki DAO, originally bZx DAO, was accused of engaging in unlawful off-exchange leveraged retail commodity transactions, activities that can only lawfully be performed by a registered futures commission merchant, and failing to implement anti-money laundering and know-your-customer procedures [4 ].

DAOs: A New Legal Entity

The case against Ooki DAO is significant as it is the first time a court has recognized a DAO as a legal person capable of being subject to liability as an entity. The court agreed with the CFTC's assertion that the Ooki DAO was an unincorporated association under California law and therefore falls within the ambit of the CEA [4 ].

DAOs are unique entities that operate on blockchain technology, distributing governance rights among persons who hold a specific governance token. This structure has raised questions about how DAOs should be recognized under existing laws that were traditionally interpreted against long-standing corporate entities [1 ].

Implications and Future Perspective

Summary

• The ruling has significant implications for the future of DAOs, as it suggests that they may be subject to the same securities regulations as traditional companies.

• Some experts argue that the ruling could stifle innovation in the blockchain space and discourage investment in new projects.

• Others believe that the ruling will ultimately benefit the industry by providing clarity and legitimacy to blockchain-based entities.

• Moving forward, DAOs will need to carefully consider their legal and regulatory obligations, and may need to register with the SEC or comply with other securities laws.

The court's decision has far-reaching implications for the future of DAOs. It sends a clear message that DAOs are not immune from enforcement and may not violate the law with impunity. This decision should serve as a wake-up call to anyone who believes they can circumvent the law by adopting a DAO structure, intending to insulate themselves from law enforcement and ultimately putting the public at risk [4 ].

The decision also raises questions about the potential liability of DAO members. If a DAO is held to be an unincorporated association or partnership, its members or participants may be held liable under the CEA or other state or federal regulations for the DAO’s acts, depending on the facts and circumstances of the arrangement and the nature of its operations [4 ].

The Ooki DAO case is a clear indication that the legal landscape for DAOs is evolving. As DAOs continue to grow in popularity, it is crucial for those involved to understand the legal implications and potential liabilities associated with these innovative structures. The future of DAOs will likely be shaped by further legal precedents, regulatory clarity, and the development of best practices for DAO governance and operations.