Blog Digital Currency Perspectives October 05, 2022

CFTC Attempts To Extend Liability To DAO Participants

In a first of its kind enforcement action, the Commodity Futures Trading Commission (“CFTC”) is attempting to hold participating members of a decentralized autonomous organization (“DAO”) liable for alleged violations of the Commodity Exchange Act (“CEA”) and CFTC regulations. The CFTC argued (1) that the DAO is an unincorporated association; (2) that on the basis of state law principles, individual members of an unincorporated association can be found liable for the debts of the association; (3) that participating members of the DAO (i.e., token holders that actually voted their tokens) have directed the operations of the DAO; and (4) that therefore those members can be held liable for the DAO’s alleged violations of the CEA and CFTC regulations. The CFTC’s attempt to extend liability to DAO participants should cause concern to the DeFi and greater Web3 communities.

Goodwin partners Mitzi Chang, John Servidio, Meghan Spillane, and Karen Ubell share more on this topic in a recent client alert.

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