DeFi Money Market closure after SEC probe could set rocky precedent

A recent SEC investigation of Tim Draper-backed DeFi Money Market platform is the latest example of a worrisome trend of increased action by regulators against unregistered securities.

It joins Kik Interactive, Ripple and Coinseed as crypto ventures facing the wrath of regulators under aspects of the securities law.

The mystery behind the sudden shutdown of DeFi Money Market on February 5 was revealed on the project’s official Telegram channel on February 9, in a statement revealing that DeFi Money Market had received a summons to an investigation from the US Securities and Exchange Commission on December 15. , 2020.

“We reviewed the subpoena carefully and with the help of the attorney, we began to comply with the legal requirements for submitting documents and making other information available to the Securities and Exchange Commission,” the post said.

“We have started negotiations with the SEC staff to resolve their investigations, and in an effort to find a mutually acceptable solution, we have concluded that an orderly liquidation of the project is the best.”

Without providing many details, the statement also confirmed that the investor assets held by DeFi Money Market – such as DAI, USDC, USDT or ETH – will be returned to clients “as soon as possible”.

The DeFi Money Market project was initially designed to allow cryptocurrency traders and investors access to token assets in the real world. General sale of DMG, the governance symbol used by DMM DAO, is over In June 2020 after raising $ 6.5 million in ETH in less than 48 hours.

It has been plagued with problems since its inception, with the initial sale riddled with barter errors and scammers exploiting confusion. The DMM team was in the beginning Described Closure of the platform “due to regulatory inquiries”.

David Gerrard, a cryptocurrency critic and Trenchant and director of the Buttcoin subreddit, said in a post that the measure shows that the US Securities and Exchange Commission is already ramping up efforts to prosecute DeFi-related projects in the US.

He argues that this is because “DeFi is blatantly safe in the United States” and that the related codes fit the safety standards as defined by Howey’s test. Gerrard refers to previous SEC administrative orders in which the ICO was viewed as sales of unregistered securities as the “model” for future litigation efforts.

While the measure is worrisome, DeFi projects with fully decentralized governance can be viewed differently, and it remains to be seen how regulators and courts will deal with such projects.

Several cryptocurrency projects other than DeFi have been unfortunate enough to have been targeted by the SEC recently.

On January 24, a New York District Court ruled in favor of the SEC’s proposal for a brief ruling against Kik Interactive, which almost raised the issue. $ 100 million in token sales in 2017.

In December 2020, the Securities and Exchange Commission announced its lawsuit against Ripple, alleging that its founders had raised $ 1.3 billion in sales of unregistered securities.

In Feb.2020, the Securities and Exchange Commission (SEC) filed charges against Steven Seagal for his role in promoting the 2018 Olympic coin.

And in New York yesterday, news emerged that a state attorney is suing cryptocurrency trading platform Coinseed for defrauding investors through an ICO under Martin Act.

While the processes related to investing in the platform have been removed, DMM users can still access their accounts and recover the token assets of their primary counterparts.