BZeroX's $ 250 fine for over-the-counter trading

If anyone thought that financial institutions would easily give up on decentralized finance, they were wrong. The US regulatory authority CTFC has just imposed a quarter of a million dollar fine on bZeroX (her successor is Ooki DAO) only for offering commodity transactions outside traditional markets, relying on blockchain technology.

Each client must be identified, and the transaction must take place on the market indicated by the regulator. This is, in a nutshell, the rules for trading contracts or options in the world we know. Since the introduction of blockchain technology, however, it is not so obvious. 

Masses of people moved to a decentralized market, where the path of money can also be traced and who has traded with whom, but regulators no longer have direct control over it. It is not surprising then that they are fighting for their share of the cake as best they can, because the frosting has already started to leak to others. 

$ 250 fine for bZeroX

Among the knights of the old guard there are, among others US regulatory authority CFTC (Commodity Futures Trading Commission). The commission just announced that it is fining bZeroX and its founders a quarter of a million dollars Tom Bean i Kyle Kistner. Reason? Offering OTC Digital Asset Trading. 

All because the company has not adopted a customer identification program under the Banking Secrecy Compliance Program required from registered futures sellers (FCM).

Ooki DAO investigation

This is not the end, however. The regulator also brought a federal civil suit against Ooki DAO, a decentralized organization and successor to bZeroX. Ooki DAO operated the same software protocol as bZeroX and, according to the CFTC, was breaking the same laws.

How bZeroX and the bZx protocol work

Interestingly, the bZx protocol was only used and sold between June 2019 and August 2021. This blockchain-based software protocol acts as a trading platform, facilitating margin placement and providing leveraged transactions in retail goods. So it worked exactly like most brokers, but the CFTC did not like the fact that it was traded in a decentralized environment. 

The regulator therefore found these transactions illegal as they had to take place in a designated contract market, which was not the case. The company was also not registered as a broker. 

- Our actions demonstrate the commitment of the CFTC to aggressively prosecute individuals and their operations that intentionally avoid regulatory oversight, at the expense of retail clients. This is all thanks to our dedicated enforcement team, which deserves the highest praise for delivering a program that touches many areas of concern in this growing market. - says the chairman of CFTC Rostin Behnam.

Penalty for bZeroX, penalty for Ooki DAO?

The regulator's complaint clarifies that in August 2021, bZeroX transferred control of the bZx protocol to bZx DAO, which was renamed Ooki DAO. We also read that Ooki DAO handles the Ooki protocol (formerly the bZx protocol) in the same way as bZeroX, and therefore still violates the law. Therefore, the regulator stated that it is demanding not only fines, but also prohibitions on trade and registration for these entities.

According to the CFTC, this will ensure equality before the law for all market players.

These actions are part of the CFTC's broader efforts to protect US clients in a rapidly changing decentralized financial environment. Trading of digital assets with margin, leveraged or funded for US retail clients must be conducted on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures and DAOs - underlines acting law enforcement director Gretchen Lowe.