The plaintiffs say they lost $1.7 million in the November 2021 attack. The protocol lost about $9 million in several other attacks. This attack was not the first hack suffered by bZx, as the platform had been targeted the year before. This allowed the hacker access to the private keys of the project’s wallet, which allowed them to steal the funds. The hack occurred when a team member fell victim to a phishing exploit. This is despite numerous claims on the protocol’s website about the security of the project.īZx lost $55 million in a phishing attack in 2021. The ruling agreed that they failed to ensure adequate security that would have prevented the hack in 2021. Monday’s ruling saw the court agree with the plaintiff’s position that DAO token holders owed “a duty of care” to protocol investors. Commodity Futures Trading Commission that bZx transitioned to a DAO to insulate the project from regulatory oversight and liability based on U.S. The Court also cited a conclusion by the U.S. At the time, the bZx protocol founders stated that the move to a DAO would insulate the project from regulatory issues. The court cited comments issued by the project team when transitioning to a DAO structure as grounds for its ruling. Ooki DAO is currently the subject of a lawsuit by the U.S. Members of Ooki DAO moved their assets to this new community. Another community called Ooki DAO soon succeeded bZx DAO, taking ownership of the protocol. The platform’s creators transitioned the protocol to a DAO controlled by bZx DAO in August 2021. As such, they are plausibly liable for the group's obligations, according to California partnership law.īZx is a DeFi margin trading protocol. It stated that the plaintiffs provided sufficient facts to qualify defendants who hold the DAO’s governance tokens as members of the general partnership. The Court’s ruling classified bZx DAO as a general partnership. judge denied a motion to bZx DAO token holders as defendants in a class action lawsuit filed by some victims of the protocol’s $55 million hack from November 2021. Schneider highlighted that the case must be “closely examined by anyone thinking about legal liability in the DAO space.A U.S. According to the lawyer, the ruling is very significant for the DAO space. Gregory Schneider, the deputy general counsel for Hedera, also commented on the lawsuit. This can potentially require these projects to obtain the licenses required for custody to comply with the law. Should this happen, decentralized finance (DeFi) platforms that employ the use of multisigs may be seen as custodial platforms. Related: Ooki DAO members explore options in response to CFTC lawsuit Shapiro noted that this may also mean the same for developers with multisigs. Gabriel Shapiro, the general counsel for crypto firm Delphi Labs, tweeted that the court’s ruling means that a single developer holding the upgrade key makes the arrangement custodial. The court filing wrote: “A successful phishing attack on a bZx developer allowed a hacker to gain access to all of the funds supposedly in custody, rendering the distinction between custodial and non-custodial meaningless here.” However, a successful phishing attack rendered the difference between the terms meaningless. The defendants of the case claimed that transactions within the bZx protocol are non-custodial because users are able to maintain custody of their assets. While the ruling seemed normal on the surface, Web3 lawyers were able to spot a significant development for decentralized autonomous organizations (DAOs). On March 27, United States District Judge Larry Alan Burns passed a ruling with regard to the class-action lawsuit against bZx DAO and a few others. In a new update to the class-action lawsuit against bZX DAO members, a United States district judge ruled that the ability for developers to upgrade a smart contract where the key is in the hands of a single developer makes the arrangement custodial.
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