Source: Cointelegraph Original: "{title}"
A federal judge in Texas has issued a default judgment against Bancor DAO, the operator of the decentralized finance platform Bancor, due to its failure to respond to an online subpoena.
Judge Robert Pitman made this ruling after Bancor DAO did not appear to defend itself. Previously, the court had issued the subpoena on Bancor DAO's forum in January 2024.
District Court Clerk Philip Delvin wrote on March 13: "Defendant Bancor DAO failed to respond or defend itself within the stipulated time, and the plaintiff has proven this fact."
The class action lawsuit involves multiple investors who claim they lost tens of millions of dollars because the exchange failed to issue warnings about liquidity issues during a surge in withdrawals in 2022.
The clerk recorded the default judgment against Bancor. Source: Law360
According to the plaintiffs, they filed the lawsuit in May 2023, alleging that Bancor misled them regarding its impermanent loss protection mechanism set up for liquidity providers and claimed that its tokens are unregistered securities.
The plaintiffs pointed out that Bancor's impermanent loss protection mechanism (ILP) operated at a loss and subsequently attempted to make up for this gap by launching a new product, v3, which promised "one of the most competitive returns in the market… without any risk to users."
Impermanent loss occurs in the DeFi automated market maker model when liquidity providers deposit assets into a pool, and if one token in the pool depreciates relative to another token, it results in impermanent loss.
Bancor suspended its impermanent loss protection in June 2022, citing "adverse market conditions."
The plaintiffs also argue that Bancor DAO is an "unregistered general partnership" composed of vBNT token holders, which can be sued in this capacity, according to Law360.
The case had previously been completely dismissed due to the protocol developers not being in the United States but was reopened in December 2023.
The plaintiffs stated that the DeFi platform "appears to be unregistered in any jurisdiction and has no physical office address, mailing address, responsible parties, directors, or designated agents."
Bancor is an on-chain liquidity protocol that supports automated decentralized trading across blockchains. According to DeFillama, Bancor currently has a total locked value of $38 million, down 98% from its peak of $1.9 billion in May 2021.
This ruling follows precedents from similar cases, where the Commodity Futures Trading Commission (CFTC) obtained a default judgment against Ooki DAO in one case.
Additionally, a federal judge in California ruled in November that DAOs and their governance members can be sued in cases involving unregistered securities.
Related: Texas lawmakers propose capping state Bitcoin purchases at $250 million.
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