How to sue an amorphous digital blob

With the help of Derek Robertson

The Rise of Crypto, Web3 and Blockchain Driven Organizations has raised some strange questions for American regulators over the past few years, including this: How do you take legal action against something? target be an amorphous digital blob?

We’re about to find out.

A federal court in Northern California has grappled with this issue since the CFTC filed a motion complaint last month against Ooki DAO, alleging that Ooki failed to register to participate in regulated commodity transactions and failed to comply with know-your-customer laws.

The problem for regulators: Ooki is a DAO, a decentralized autonomous organization built on top of the blockchain and owned and operated as a sort of collective entity by anyone who owns Ooki tokens.

The case appears to be the first time a federal agency has sued a DAO that theoretically operates without a centralized means of control.

What Ooki actually does It offers users the opportunity to make leveraged trades in digital assets. Normally, financial trading exchanges are regulated by states and Washington, and the CFTC argues that Ooki must register as such.

However, in attempting to enforce its complaint, the powerful federal agency raises a number of questions about exactly how existing laws apply to this new form of organization.

First of all, how do you send a notification to a DAO in the first place?

Because the DAO does not have an identifiable mailing address to receive documents in this case, or an official director to sign for them, the CFTC sent information about the case to a chatbot on the DAO’s website and posted it in one used by the DAO Forum publishes members. The commission argued that this unorthodox process worked because the forum post had been viewed more than 100 times and discussed in a group chat about the DAO on the encrypted messaging app Telegram.

On Monday, a judge ruled that the commission had done so properly served the DAO, but two outside parties have filed amicus briefs asking the court to reconsider.

While the briefs don’t answer the question, how does the government should serving a DAO, the political director of one of the outside groups, Miller Whitehouse-Levine of the DeFi Education Fund — a 501(c)(4) advocacy group that is itself funded by the Uniswap DAO — referred me to an intriguing state court precedent.

Earlier this year, a court in New York dealt with the issue of serving a notice to anonymous hackers who allegedly stole $8 million worth of digital assets. The court granted the plaintiff serve the accused by sending a crypto token to the wallet holding the stolen funds that contained a hyperlink to the relevant file.

In Ooki’s case, the relevant wallets would be those that participated in DAO governance votes. “It’s trivial to see which wallets voted,” Whitehouse-Levine said. “This points to the unreasonableness of not serving individuals.”

Legally delivering papers is just the beginning.

“If it goes ahead, there will be even bigger questions of liability,” said Nicholas Saady, a blockchain-focused attorney at Pryor Cashman. “What is a DAO? Who is liable?”

This is not total uncharted territory. The CFTC has already settled a similar lawsuit with two founders of the DAO predecessor company. And some legal issues surrounding DAOs can be simplified by holding programmers and founders accountable for the code they provide, or by stating that supposedly decentralized groups are in fact centralized – as various federal agencies have previously posited enforcement actions.

Further replies could come as soon as next Friday, the current deadline for the DAO to respond to the complaint.

“Who will submit an answer? Will it just be a default judgment if no one shows up? Will it be the original developers?” asked Max Dilendorf, a New York attorney specializing in crypto issues. “I don’t know what that will look like in practice.”

NFTs may have taken a hit along with the rest of the crypto market this year, but the waning of the hype-cycle-slash gold rush surrounding them could be a positive for the medium’s long-term adoption.

Case in point: Christie’s auction house last week announced the launch of “Christie’s 3.0”, a platform that will enable NFT sales on the Ethereum blockchain. Christie’s 3.0 is currently auctioning a set of nine NFTs by Diana Sinclair, an 18-year-old NFT artist from New York, the auction ends on October 11th. Christie’s is the rare institution in the old guard art world to have a bear-hugged the medium after selling a work by pseudonymous NFT artist “Beeple” for nearly $70 million early 2021.

in one semi-viral blog post Last month, Web3 venture capitalist Li Jin made the case for blockchain technology as a tool not only for artists to stay in control of their work and livelihood, but also for a community of active “stakeholders” over the tokens they issue build up.

If that sounds a little financialized and sterile for the art world — you know, the world of Van Gogh, Frida Kahlo, and Basquiat — it’s an even stronger reminder of the strange collision of big VC money and decentralized, insurgent philosophy that is the Web3 -Movement. — Derek Robertson

Why is Washington freaking out over Elon’s Twitter purchase?

Rebecca Kern from POLITICO has the story today and points to the three main reasons why politicians and journalists are reeling at the possibility that the mogul could take over the platform ahead of the 2022 election — let alone the 2024 election. Among them:

• Trump’s return to Twitter, which “could help Democrats portray this as an election over Donald Trump,” as one Republican hand noted.
• Lax moderation, which Democrats and media representatives fear, could lead to the spread of misinformation or hate speech.
• An exodus of politicians, when the lax moderation mentioned above results in users fleeing the platform and therefore making those politicians less worth their time.

When Musk first announced his plans to buy the platform in April, we wrote about it like, although at first glance it may seem like an unusually abstract pursuit for a Futurist concerned primarily with (sometimes literally) concrete technology, Twitter’s centrality to public discourse makes its impact as “real” as any lithium battery or humanoid robot. Now that he could own the platform within days, this reality is hitting the platform’s power users harder than ever. — Derek Robertson

Stay in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Steve Heuser ([email protected]); and Benton Ives ([email protected]). follow us @DigitalFuture on twitter.

Ben Schreckinger reports on technology, finance and politics for POLITICO; he is a cryptocurrency investor.

If you have received this newsletter, you can do that Register and read our mission statement under the given links.