More than Just the Ooki DAO: Lessons for Web3 Companies About Control After bZx

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'The area where we repeatedly see regulators blur the line between technical reality and their regulatory objectives is around control of a decentralized protocol.' Opinion.

Daniel M. Barabander is an associate in Cravath, Swaine & Moore’s corporate department.

David J. Kappos is a partner in Cravath, Swaine & Moore’s corporate department and co-chair of the firm’s intellectual property practice. Evan Mehran Norris is a partner in Cravath, Swaine & Moore’s litigation department and a member of the firm’s investigations and regulatory enforcement practice. Daniel M. Barabander is an associate in Cravath, Swaine & Moore’s corporate department.

The bZx enforcement action demonstrates how at least one key regulator is thinking about control of Web3 protocols in order to hold operators accountable: by examining both technical and business control to draw the line between identifiable persons and autonomously run protocols.Technical control refers to technical mechanisms protocol developers use to control their protocol on the smart contract level, often by defining “admin-only” functions that can be called solely by specific parties.

In response to the breach, the DAO exerted its control over treasury funds, by “vot[ing] to utilize funds from the bZx DAO Treasury to compensate certain bZx DAO members and other users of the bZx Protocol who lost funds in connection with” the incident. The commission focuses most clearly on the fact that the respondents “designed, deployed, marketed and made solicitations” concerning the bZx protocol.

Third, active participation in a DAO is seen as a form of business control. The CFTC finds in the settlement order that the co-founders were active on Ooki DAO governance matters.

 

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'Cool', indeed.

I wish someone showedd me thisss earlier!!!

They don’t want youu to know this!

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