A recent decision handed down by a U.S. Federal Judge has established a precedent that the decentralised nature of a Decentralised Autonomous Organisation (DAO) will not protect it from regulatory scrutiny. Given that many DAOs and DAO founders to date have erroneously considered that they are not subject to regulatory oversight, this explicit ruling will have global implications in the DeFi space.

Commodity futures are derivative contracts in which the purchaser agrees to buy or sell a specific quantity of a commodity at a specified price on a particular date in the future. To trade in commodity futures or other derivatives in the US, entities need to be registered with the Commodity Futures Trading Commission (CFTC).

The CFTC brought a lawsuit against Ooki DAO last year, accusing them of unlawfully acting as a futures commission merchant and illegally offering retail margin and leverage trading services. The judge ruled in favour of the CFTC and ordered Ooki DAO to shut down their website to prevent the public from accessing the platform.

This judgment recognises that despite its decentralised structure, members of a DAO face liability for violations of the law and must be appropriately registered if they are to trade in commodity futures. Following this case, every DAO that trades in commodity futures will need to be registered, as the judge held that the Court’s jurisdiction depended on the  “existence of sufficient national contacts.” Given that Ooki DAO operated through its website, which could be accessed by US Consumers, sufficient national contacts were established. As such, any DAO that can be accessed online by US consumers will need to be registered under the Commodity Exchange Act. US consumers now also benefit from greater protections from the CFTC against fraudulent digital currency platforms. The judgment for the Ooki DAO case can be found here.

Stirling and Rose have previously submitted work to international law commissions on the importance of granting DAOs legal recognition to avoid unlawful trading of financial products. You can read more of our insights on DAOs here.

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