The viability of DAO structures draws attention after a judge declares that a decentralized autonomous organization is a “person” under the law.

By Nima H. Mohebbi, Yvette D. ValdezStephen P. WinkDouglas K. Yatter, Peter Trombly*, Adam Zuckerman, and Deric Behar

On June 8, 2023, the US District Court for the Northern District of California granted the Commodity Futures Trading Commission (CFTC) a default judgment against Ooki DAO, a decentralized autonomous organization (DAO) that the CFTC charged in September 2022 with three violations of the Commodity Exchange Act (CEA).

  • Engaging in unlawful off-exchange leveraged retail commodity transactions
  • Engaging in activities that can only lawfully be performed by a registered futures commission merchant
  • Failing to implement anti-money laundering and know-your-customer procedures.

Ooki DAO did not respond to the CFTC’s complaint, and failed to appear in court for any scheduled hearings, a move described in the judgment as “strategic nonparticipation.”[1]


Under the CEA, the offer to retail persons of commodity transactions that are leveraged, margined, or financed by a third party, and that do not result in actual delivery of the commodity within 28 days, is regulated as if such a transaction were a futures contract. Futures markets including their intermediaries, such as futures commission merchants (FCMs), are subject to robust regulation by the CFTC.

The complaint alleged that the founders of bZeroX, LLC designed, deployed, marketed, and made solicitations to retail persons concerning a blockchain-based software protocol that accepted orders for and facilitated margined and leveraged retail commodity transactions. The protocol purported to offer users the ability to engage in these transactions in a decentralized environment — i.e., without third-party intermediaries taking custody of user assets. bZeroX, LLC subsequently transferred control of the bZx protocol to the bZx DAO, which then renamed itself as the Ooki DAO. The CFTC called this “simply a rebranding in name only . . . [that] did not result in legal changes to the DAO’s business or material changes to its operations.” The DAO, according to the CFTC, was “an unincorporated association comprised of Ooki Token holders who have voted those tokens to govern the Ooki Protocol.”

The CFTC alleged in its complaint that “[a] key bZeroX objective in transferring control of the bZx Protocol (now the Ooki Protocol) to the bZx DAO (now the Ooki DAO) was to attempt to render the bZx DAO, by its decentralized nature, enforcement-proof. Put simply, the bZx Founders believed they had identified a way to violate the [CEA] and [CFTC] Regulations, as well as other laws, without consequence.”

Relatedly, the founders of bZeroX, LLC settled with the CFTC on the same day as the Ooki DAO complaint was filed, without admitting or denying the findings and conclusions of the settlement order.


The judgment requires the Ooki DAO to pay a civil monetary penalty of $643,542; orders permanent trading and registration bans and enjoins any further violations of the CEA by the Ooki DAO; and orders the Ooki DAO (as well as any third party providing it with web-hosting or domain-name registration services) to shut down the Ooki DAO’s website and remove its content from the internet.

Notably, the court held that the Ooki DAO is a “person” under the CEA and thus can be held liable for violations of the law. The CEA assigns liability to “[a]ny person” that takes particular actions, and defines “person[s]” to include “individuals, associations, partnerships, corporations, and trusts.” The CFTC alleged, and the court ultimately agreed, that the Ooki DAO was an unincorporated association under California law and therefore falls within the ambit of the CEA.


How and whether the CFTC will seek to enforce this judgement remains to be seen. The CFTC is expected to first seek to collect the fine from the Ooki DAO itself. This prospect, however, raises a number of interesting questions about how and whether this might occur:

  • How will the CFTC coordinate with the DAO to make such a payment?
  • Would a token-holder vote be necessary to designate or release assets to make such a payment?
  • Do participants in such a token-holder vote face potential liability, given that the CFTC described the entity responsible for the alleged violations as “an unincorporated association comprised of Ooki Token holders who have voted those tokens to govern the Ooki Protocol”?
  • How would the Ooki DAO convert any assets held by the DAO into funds that could be used to pay the penalty?
  • Who would provide any notice to the CFTC in connection with payment of the judgment on behalf of the Ooki DAO?

The Ooki DAO was found to be an unincorporated association (a form of entity which generally does not provide limited liability to its members). Therefore, if the Ooki DAO itself cannot pay the penalty, it remains to be seen if the CFTC will seek to enforce the judgment against one or more individual token holders. In its motion papers, however, the CFTC disclaimed that it would enforce judgment against absent third parties, and the final judgment reiterated this point (“Nor does the CFTC’s complaint request that the Court enter judgment against any individual Ooki DAO member on the basis of that member’s joint and several liability for a judgment against the Ooki DAO.”).

The CFTC’s messaging notwithstanding, this raises a number of novel questions:

  • Would the CFTC choose to pursue such a method of enforcement under the circumstances?
  • Which token holders, if any, might the CFTC choose to enforce against?
  • Would a court find it is unfair or improper for the CFTC to enforce the order against a member of the Ooki DAO who only had a small number of tokens or had limited participation, or who may not have known about the CFTC enforcement action in the first place or be located abroad?

Implications for DAOs

The Ooki DAO decision appears to be the first by a court to find a DAO to be a legal person capable of being subject to liability as an entity.[2] The director of the CFTC Division of Enforcement heralded the default judgment as a “sweeping victory” and “a precedent-setting decision.” He noted that “[t]his decision should serve as a wake-up call to anyone who believes they can circumvent the law by adopting a DAO structure, intending to insulate themselves from law enforcement and ultimately putting the public at risk.”

The decision causes heightened concern around liability risks and thus viability of participating in DAOs. Regulators may argue that they now have a clear path to hold a DAO liable as a partnership or unincorporated association if they believe the activities of the DAO or its members to be unlawful.

Importantly, to combat some of this risk and uncertainty, some DAOs attempt to use legal wrappers to protect against the potential risk that individual members could face such liability in their personal capacity. Wyoming, for example, enacted legislation in July 2021 to allow DAOs to obtain limited liability company status, though implementation has proved challenging (for more information, see this Latham post).

While the default judgment is specific to facts and circumstances at hand, the decision highlights broader questions around the extent of potential liability of a DAO’s members. The concern may go beyond the application of derivatives laws, but rather to the broader application of financial regulation and legal liability doctrines to decentralized finance generally. The decision underscores the regulators’ position that a DAO structure may not “insulate the . . . protocol from regulatory oversight and accountability for compliance with US law,” as the CFTC alleged in regard to the Ooki DAO. 

Whether or not a DAO will be held to be an unincorporated association or partnership, or whether some or all of its members or participants may be held liable under the CEA or other federal or state regulation for the DAO’s acts, will ultimately depend on the facts and circumstances of the arrangement and the nature of its operations in light of the governing laws and regulations. Unfortunately, recent legislative proposals have not yet provided clarity regarding regulation of DeFi (see this Latham post for more information). Much remains to be seen regarding how existing law will be applied to decentralized projects and how the broader Web3 industry will continue to build and launch projects in the face of ever-increasing scrutiny and enforcement by US financial regulators.


* Not admitted to practice in New York. Admitted to practice in Virginia.

[1] Latham & Watkins filed amicus curiae briefs in the case on behalf of a16z. CFTC v. Ooki DAO, No. 3:22-cv-5416 (N.D. Cal.), ECF Nos. 45-1, 56, 70.

[2] A class action filed on May 2, 2022 in the US District Court for the Southern District of California against the bZx DAO and several other associated persons and entities has yet to be resolved. However, on March 27, 2023, the court denied a motion to dismiss that was filed by the DAO members. The court found that the plaintiffs stated facts sufficient to allege that a general partnership existed among the bZx DAO tokenholders with governance rights in the DAO, and that a negligence claim may proceed against the DAO as a general partnership. Christian Sarcuni, et al., v. bZx DAO, et al., No. 3:22-cv-00618 (S.D. Cal.).