In the Ooki DAO case, CTFC came under fire for “blatant regulation by enforcement.”

Even the CFTC’s own commissioner voiced significant opposition to the agency’s activities, while others compared it to the SEC’s enforcement-based regulating strategy.

After bringing a federal civil enforcement action against members of the decentralized autonomous organization Ooki DAO for infractions related to trading in digital assets, the Commodities Futures Trading Commission (CFTC) has come under harsh criticism from the community.

The CFTC announced in a press release on September 22 that it had filed and simultaneously resolved charges against Tom Bean and Kyle Kistner, the creators of the decentralized trading platform bZeroX, for their part in “illegally offering leveraged and margined retail commodity transactions in digital assets.”

The community has, however, raised a stink about a concurrent civil enforcement action against Ooki DAO, a group affiliated with bZeroX, and its members, alleging that they violated the same laws as the respondents by using the same software protocol as bZeroX after gaining control of it.

A number of cryptocurrency attorneys, as well as a CFTC commissioner, are upset about the enforcement action because they fear it would create an unfavorable regulatory precedent.

While she supports the CFTC’s allegations against the bZeroX founders, CFTC commissioner Summer Mersinger stated in a statement on September 22 that the enforcement agency is entering unknown legal ground by pursuing action against DAO members who voted on governance proposals.

For a variety of reasons, I cannot support the Commission’s strategy of basing the culpability of DAO token owners on their involvement in governance voting.

By establishing policy based on novel definitions and criteria that have never before been stated by the Commission or its staff or made available for public debate, she claimed that the approach amounted to obvious “regulation by enforcement.”

The enforcement action “may be the most egregious example” of regulation by enforcement in the history of cryptocurrencies, according to lawyer and head of policy at the U.S. Blockchain Association Jake Chervinsky on Twitter. He compared the CTFC to the U.S. Securities and Exchange Commission, noting that:

We have long complained about the SEC’s abuse of this strategy, but the CFTC has shamed them.

The DeFi Education Fund added its voice by pointing out that anyone attempting to innovate using DAOs face a bleak future as a result of the CFTC’s claims.

“Lawmaking by enforcement” stifles innovation in the US, and today’s move will regrettably further deter anyone from the US from not just building but also merely participating in DAOs, it stated.

Charges include participating in operations that “only registered futures commission merchants (FCM) may conduct,” selling retail leverage and margin trading unlawfully, and failing to implement a client identification procedure in accordance with the Bank Secrecy Act.

The CTFC also noted that Bean and Kistner had said they wished to shift bZeroX to the Ooki DAO in order to avoid legal repercussions related to the murky decentralization territory.

The CFTC said that by handing over authority to a DAO, bZeroX’s creators boasted to community members that operations would be enforcement-proof, allowing the Ooki DAO to flout CEA and CFTC rules with impunity.

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