There is great concern about regulation and the legitimacy of cryptocurrency projects in the Web3 community. Federal regulators are pursuing cryptocurrency in many new directions. The most recent instance is the Commodity Futures Trading Commission’s (CFTC) investigation against Ooki DAO.
When the CFTC announced in September that Ooki DAO and its investors would be subject to a sum of $250,000 penalty, it increased concerns. The fine was especially alarming given that DAOs are supposed to be regulation-proof. So let’s look at this in further detail.
The Effects of the Fine
According to the CFTC’s statement, the bZeroX protocol used by Ooki DAO permitted illegal off-exchange dealing of digital assets. CFTC argued that the creators, Kyle Kistner and Tom Bean, attempted to leverage the DAO’s current bZeroX protocol to make it immune to regulation.
The founders of bZeroX boasted to the members of the bZeroX community that by handing over authority to a DAO, the activities would be immune to enforcement. The CFTC claims that the bZx owners were mistaken. DAOs may not break the law with freedom and are not exempt from enforcement.
However, the fine is not particularly unexpected. The CFTC and other authorities won’t adhere to a decentralized facade. But Web3 attorneys and developers are highly concerned about something in the ruling. According to the agency’s lawsuit, a particular DAO’s voters may be held distinctly accountable. People who participate in transactions may also be held accountable rather than only creators. As a result, consumers will undoubtedly become wary of DAOs and Web3, in particular, after this announcement.
Moreover, The Securities and Exchange Commission (SEC) and the CFTC compete to control the Web3 industry. Crypto conservatives question whether centralized governments should have any influence over an environment they have only once attacked.
The Stabenow-Boozman bill is a proposal from the United States. With Senate approval, the CFTC might be given direct control over coins that classify as digital commodities. As a result, the CFTC may require exchanges and digital Web3 providers to register, thus entangling decentralized finance in the centralized web from which it was designed to break free.
Smart Contracts and Wallets
Historically, the SEC has worked to regulate cryptocurrencies. The agency is helpful because it can go after Ponzi schemes and massive fraud, which are prevalent in Web3. However, there is a significant distinction between pursuing fraud cases and controlling or administering the sector with irrelevant regulations.
According to new rules issued in September, even Proof-of-Work blockchains are targeted by the current U.S. administration. At the same time, many administration officials are advocating for a digital USD.
Another highly contentious, harsh crypto rule that politicians have floated calls for recipients of transactions above $10,000 to verify the identity of senders. Additionally, they want smart contracts to be governed like future contracts. Criminal penalties are also proposed for people who create mixers or privacy coins.
The tension between conventional regulators and contemporary finance appears to be boiling over. Regulations are not changing to accommodate the demands and advantages of contemporary DeFi. As a result, emerging Web3 protocols and current laws are at odds right now. Dealing with the current legal system is nearly impossible because it isn’t adaptable enough to consider DeFi.
Ooki DAO is unfavorable news for American cryptocurrency developers. Unfortunately, given the current behavior of the administration, it will not be the last one.