Court Rules Against Bancor DAO in Investor Lawsuit Over Liquidity Losses
A federal judge in Texas has ruled in favor of plaintiffs in a class action case against Bancor DAO, the organization behind the decentralized finance platform Bancor, after it failed to respond to legal summons.
The default judgment was issued by Judge Robert Pitman after the decentralized autonomous organization (DAO) failed to appear in court or address the summons, which was posted on its online forum in January 2024.
District court clerk Philip Delvin announced the decision on March 13, confirming that Bancor DAO’s failure to respond within the allotted time allowed the plaintiffs to present their case without opposition. The lawsuit, filed in May 2023, accuses Bancor of misleading investors about the security and functioning of its liquidity protection mechanisms, as well as misrepresenting its token as an unregistered security. The plaintiffs argue that Bancor’s impermanent loss protection (ILP) was flawed and became unsustainable, prompting the platform to launch its v3 product under the false promise of high returns with minimal risk. The class action claims that Bancor’s failure to address liquidity issues during a significant withdrawal spike in 2022 led to substantial financial losses for investors.
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The suit also highlights concerns that Bancor DAO, as an unincorporated entity, lacks a physical office and proper registration, which the plaintiffs claim makes it difficult to hold the organization accountable. Despite the DeFi protocol not being registered or having clear governance structures, it has faced legal action as a general partnership of vBNT tokenholders. Initially dismissed due to the developers’ non-U.S. location, the case was revived in December 2023.
Bancor, which facilitates decentralized exchange and liquidity across blockchain networks, has seen its value significantly drop, with its total value locked (TVL) plummeting by 98% since its peak in 2021. The case sets a significant precedent for DAOs, echoing similar rulings, such as one from the Commodity Futures Trading Commission (CFTC) against Ooki DAO, which reinforces the potential for DAOs to be held liable for unregistered securities.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
