Last week, the Commodity Futures Trading Commission (CFTC) sued a decentralized autonomous organization (DAO). Although the agency has repeatedly claimed that it simply wants to create a more inclusive financial system, its approach means that most DAOs will need to watch their backs from now on.

No One Is Safe from the CFTC

Last week, the CFTC announced that it had filed and settled charges against the founders of bZeroX, Tom Bean and Kyle Kistner. bZeroX is one of the best crypto DAO projects that allow users to engage in decentralized token and digital asset trading. The financial watchdog stated that it had charged the men for “illegally offering leveraged and margin retail commodity transactions in digital assets.”

According to the CFTC, bZeroX – which eventually transitioned into the Ooki DAO – had engaged in activities that only regulated entities known as futures commission merchants (FCMs) could perform. The DAO offered leveraged and margin retail commodity transactions for cryptocurrencies illegally and without attaining a license. The CFTC eventually settled the case after collecting a $250,000 fine.

Records show that this is the first time a DAO will face legal action from the CFTC. And, as is usually the case, it drew a significant level of criticism from many in the crypto market. The crypto community was especially furious that the CFTC filed charges against bZeroX and the Ooki DAO, alleging that Ooki had used the same software protocol as bZeroX after it gained control of the platform.

Jake Chervinsky, an attorney and the head of policy at the U.S. Blockchain Association, said that the CFTC’s action represented the “ most egregious example” of regulation by enforcement in the history of crypto.

Chervinsky drew parallels between the agency’s actions and those of its sister regulator, the Securities and Exchange Commission (SEC), adding that the CFTC appears to be even more blatant in its disdain for proper regulations than the SEC.

Gabe Shapiro, the General Counsel at crypto research firm Delphi Digital, added that the CFTC’s positions are just wrong. Echoing Chervinsky’s thoughts, he explained that the crypto industry is in for a significant fight over the activities that are acceptable in the space – a fight that could be even worse than the SEC, which continues to push for the classification of most digital assets as securities.

CFTC Commissioner Breaks Ranks

The biggest criticism of the CFTC’s actions came from Commissioner Summer Mersinger. In a statement published on Thursday, Mersinger announced her support for the CFTC’s charges against bZeroX’s founders. However, she also pointed out that the financial regulator appears to be sweeping into uncharted territory when taking action against DAO members that carry out their operations based on votes and well-established governance protocols.

Mersinger explained that the CFTC seems to be determining liability for DAO token holders based on their participation in governance voting. She added that the CFTC is making the same mistake as the SEC, engaging in regulation by enforcement as it seems to be setting policies based on new standards and definitions that haven’t been articulated before.

The argument against perceived regulation by enforcement has always surrounded the crypto market. SEC Commissioner Mark Uyeda recently argued that the agency has continued to make this mistake, prioritizing enforcement over creating the right rules to guide the operations of cryptocurrencies – and, by extension, the operations of companies within the space.

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