The idea behind decentralized autonomous organizations (DAOs) was to make them immune to regulation. Federal authorities are now focusing not just on a DAO but also on its investors.
In the Web3 community, there is a great deal of concern about regulation and the legitimacy of cryptocurrency initiatives. The Commodity Futures Trading Commission (CFTC), which announced in September that it was fining a decentralized autonomous organization (DAO), Ooki DAO, and its investors $250,000, made this particularly clear in the US. The penalty was especially concerning given that DAOs should be “regulatory proof.”
The bZeroX protocol used by Ooki DAO offered illegal off-exchange trading of digital assets, according to the CFTC’s statement on the subject. The organization objected that the creators, Kyle Kistner and Tom Bean, attempted to leverage the DAO’s existing bZeroX protocol to make it immune to regulation.
Here Is Where Things Went Wrong
According to the CFTC, bZeroX’s creators boasted to members of the bZeroX community that the activities would be enforcement-proof by moving power to a DAO. However, The bZx Founders were wrong. DAOs may not break the law with impunity and are not exempt from enforcement. The CFTC and other authorities won’t adhere to a decentralized facade. But Web3 attorneys and developers are highly concerned about something in the judgment. According to the agency’s lawsuit, a particular DAO’s voters may be held uniquely accountable.
Regarding cryptocurrency legislation, there are too many open questions. Microtransactions and airdrops are one example. Such transactions occur over a long period on various exchanges, with varying price swings. Tax reporting on this is impossible, especially since many sites are no longer used. It becomes nearly impossible to account for when you include staking rewards and liquid staking for derivative tokens. Even Proof-of-Work (POW) blockchains are being targeted by the Biden administration, according to new “complete guidelines” released in September. At the same time, administration officials are advocating for a digital USD.