The DAO That Couldn’t Hide: CFTC vs Ooki

Tubrazy Shahid
1 day ago
4 min read

The case of CFTC v. Ooki DAO represents a foundational moment in the legal treatment of Decentralized Autonomous Organizations (DAOs) under U.S. commodities law. In an enforcement action initiated in 2022, the U.S. Commodity Futures Trading Commission (CFTC) challenged the notion that a DAO’s decentralized structure could immunize it from legal liability—ultimately securing a default judgment in its favor and establishing crucial legal precedent.Source: CFTC Press ReleaseSource: The Block Coverage

Background: CFTC Enforcement and the Ooki DAO Litigation

In September 2022, the CFTC filed a complaint against Ooki DAO, a decentralized organization that succeeded the bZeroX protocol, alleging the DAO operated an unregistered trading platform offering leveraged retail commodity transactions in digital assets and acting as an unauthorized futures commission merchant (FCM). The regulator also simultaneously imposed penalties on the protocol’s predecessor—bZeroX, LLC—and its founders for similar violations.Source: CFTC September 2022 Order

The CFTC’s complaint asserted that the DAO functioned as an unincorporated association under federal and state law, and continued the same unlawful activity that began at bZeroX. By attempting to shift operational control from a centralized entity to a DAO structure, the defendants sought to eschew regulatory accountability—an effort the Commission vigorously challenged.Source: Skadden Legal Insight

Key Legal Issue: Can a DAO Be Held Liable?

The central legal question in CFTC v. Ooki DAO was whether a DAO, lacking traditional corporate form and formal incorporation, could be treated as a legal entity capable of being sued and held liable under the Commodity Exchange Act (CEA). Opposing arguments, including several amicus briefs, posited that DAOs were mere technology frameworks or unstructured networks rather than conventional organizations subject to regulation and enforcement.Source: CFTC Pushes Back on Amicus Arguments

The court ultimately rejected these arguments. In a procedural decision on service of process and liability, the U.S. District Court for the Northern District of California confirmed that the Ooki DAO could be sued as an unincorporated association and therefore qualifies as a “person” under the Commodity Exchange Act, thereby subjecting it to enforcement actions.Source: Greenberg Traurig Analysis

Ruling: DAO Liable and Accountable

On June 9, 2023, Judge William H. Orrick entered a default judgment against the Ooki DAO after the organization failed to respond to the CFTC’s complaint. The judgment holds:

Ooki DAO is a person under the CEA and can be held legally responsible for regulatory violations.
The DAO engaged in illegal off-exchange retail leveraged trading and acted as an unregistered FCM.
The DAO failed to comply with Bank Secrecy Act obligations, including Know-Your-Customer (KYC) requirements.
The court ordered the DAO to pay civil monetary penalties of more than $640,000, cease operations, and remove its online presence.Source: CFTC Press Release – Litigation Victory

This ruling represents one of the first times a U.S. regulator has treated a DAO as a litigable legal entity, rejecting the argument that decentralization inherently shields an organization from enforcement. It positions DAOs within existing legal frameworks where they engage in regulated activities.Source: The Block Report on CFTC Victory

Precedent: DAO Entity Status and Member Liability

1. DAOs Recognized as Persons Under U.S. Law

The most significant precedent from the Ooki DAO case is that DAOs can be treated as “persons” under the CEA and therefore can be named defendants in enforcement actions. This interpretation aligns DAOs more closely with unincorporated associations under federal and state law—entities that, while lacking formal corporate charters, may nonetheless be subject to legal process.Source: CFTC Litigation Analysis

2. Member Exposure to Liability

The CFTC’s orders and the underlying legal theories suggest that DAO members who participate in governance—for example, by voting tokens to enact protocol changes—could be personally liable for violations of law attributable to the DAO. In legal terms, this treatment resembles the liability rules for members of general partnerships or unincorporated associations, where participants can be held accountable for collective obligations.Source: Skadden LLP Insight on Member Liability

This aspect of the ruling signals a significant shift in regulatory thinking: engagement in DAO governance is not merely symbolic; it has real legal implications under existing liability frameworks.

Implications for the Crypto Industry and Future DAO Regulation

The CFTC v. Ooki DAO precedent foreshadows a more assertive regulatory environment for decentralized finance (DeFi) participants:

Regulators may pursue enforcement against other DAOs engaging in activities that require registration or compliance.
DAO founders and token holders must reassess legal exposure before participating in or launching decentralized platforms that touch regulated markets.
Legal counsel advising DAO structures should account for liability risks under commodity, securities, and financial compliance laws.

In effect, the decision clarifies that decentralization does not equal immunity from regulation. DAOs that engage in regulated conduct must adopt compliance strategies comparable to traditional entities to mitigate legal risk.

Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal or financial advice.

Author & Crypto Consultant

Shahid Jamal Tubrazy (Crypto & Fintech Law Consultant)

Shahid Jamal Tubrazy, a certified top expert in Crypto Law from Duke University, is a leading authority in the cryptocurrency and blockchain space. As a seasoned Fintech lawyer, he offers a full spectrum of services, including licensing, legal guidance for ICOs, STOs, DeFi, and DAOs, as well as specialized expertise in crypto mediation, negotiation, and mergers and acquisitions. With a proven track record and published works on Blockchain Regulation and Cryptocurrency Laws, Shahid provides unparalleled insights into the complexities of the fintech world, ensuring compliance and strategic success. 🌐💼 #CryptoLaw #Fintech #Blockchain #LicenseServices #CryptoMediator #MergersAndAcquisitions #CryptoCompliance #FrozenAssetsrecovery.