Double Whammy: Warren's Proposal and Court's Decision on bZx DAO
Did you hear about the two big events that went down in late March? Senator Elizabeth Warren proposed some heavy-duty regulations for crypto platforms, while a court handed down a verdict in the bZx DAO case. While the Senator's move may have some folks feeling like the sky is falling, the court ruling could seriously shake things up for DeFi platforms.
Senator Elizabeth Warren from Massachusetts is known for her tough stance on protecting Americans from fraud in the cryptocurrency industry. However, her latest proposed rules have been criticized as potentially damaging to everyone involved in the American market. Warren's demands include banning digital currency mixers, requiring non-custodial wallets to comply with anti-money laundering policies, and forcing DeFi platforms to hand over all information to the government without a warrant. These rules may cause many companies to lose their American customers.
The proposed legislation looks particularly absurd given the backdrop of failing banks, but Warren accuses the government of protecting crypto companies instead of regular people:
It’s no wonder the American people are skeptical of a system that holds millions of struggling student loan borrowers in limbo but steps in overnight to ensure that billion-dollar crypto firms won’t lose a dime in deposits.
Unfortunately, some senators are using manipulative rhetoric to paint cryptocurrency as the main problem, instead of proposing sensible regulation or supporting investigations into open fraudsters like SBF. However, statistics show that money laundering in cryptocurrency is at least 80 times less common than in traditional currencies. Hopefully, common sense will prevail, and regulations won't hinder innovation and progress in this growing industry.
The second piece of news is a significant event for the DeFi industry, not just an act of desperation. In the collective lawsuit against bZx DAO for a phishing attack on a developer, the court concluded that the platform is considered custodial if a single team holds the key to update the protocol. Legal professionals have already provided their opinions on this decision.
This opinion effectively holds that full upgradeability of smart contract where upgrade key is in the control of a single dev is a custodial arrangement. I expect result will be the same for dev multisigssaid Delphi Labs general counsel Gabriel Shapiro.
Meanwhile, Hedera's Deputy General Counsel Gregory Schneider stated that this decision should be carefully examined to understand what legal responsibility can be imposed on DAOs:
The token-holding defendants are plausibly alleged to have breached that duty by having inadequate security — specifically that a single phishing email to a single developer permitted hackers access to the entire amount of bZx protocol deposits on the Polygon and Binance blockchains.
This ruling is a game-changer for DAO developers and a turning point for DeFi platforms globally, not just in the US market. It's time for teams to fortify their security measures and prepare for potential legal changes. This decision marks a new era of accountability, and only those who adapt will survive the crackdown.
