U.S. regulators cannot sue DAOs because they are “technological tools” and not traditional companies.
That was the main message in a filing Paradigm, the web3 venture capital firm, filed on behalf of Ooki DAO, a project that was the subject of an enforcement action by the Commodity Futures Trading Commission (CFTC) last month.
The friend-of-the-court brief, which was filed in U.S. District Court in San Francisco, echoes the arguments made by Coin Center in a lawsuit filed against the U.S. Department of the Treasury earlier this month.
In that complaint, Coin Center, a non-profit advocacy organization representing the web3 industry, said the administration overstepped its authority by sanctioning smart contracts at Tornado Cash, a crypto mixer. The Feds were wrong to sanction software code.
Paradigm makes much the same case in its brief.
The firm argues that the CFTC cannot sue the DAO as a whole, because the DAO is an ever-changing entity, and that the CFTC should instead serve the individual members of the DAO.
“To start, a DAO is not itself a ‘group of persons’—it is a technological tool for social coordination through which people can make decisions,” the brief says. “Holding a technological tool liable for the actions of some of its users makes no more sense than holding ‘the internet’ liable for misconduct it facilitates.”
On Sept.22, the CFTC alleged that Ooki DAO unlawfully sold unregistered derivatives contracts. The DAO agreed to pay a $250,000 penalty, the agency said.