Texas court issues judgment against Bancor DAO after it ignored summons

A Texas federal judge has entered a default judgment against Bancor DAO, which operated the decentralized finance platform Bancor, after it failed to respond to an online summons. 

Judge Robert Pitman issued the judgment after Bancor DAO did not appear to defend itself following a summons that was posted on the DAO’s forum in January 2024.

“Defendant Bancor DAO has failed to answer or otherwise defend itself within the time allowed, and that plaintiffs have demonstrated that failure,” wrote district court clerk Philip Delvin on March 13.

The class action involves investors who claim they lost tens of millions of dollars due to the exchange’s failure to warn about liquidity issues during a 2022 withdrawal spike.

Clerk’s entry of default against Bancor. Source: Law360

According to the plaintiffs, who filed the suit in May 2023, Bancor deceived investors about its impermanent loss protection mechanism for liquidity providers and also claimed its token was an unregistered security. 

They said Bancor’s ILP operated at a deficit and tried to cover by launching a new product, v3, which promised “some of the most competitive returns anywhere […] without asking users to take on any risk.”

Impermanent losses occur within DeFi automated market maker models when liquidity providers deposit assets into a pool, and one of the tokens loses value against another in the pool. 

Bancor paused impermanent loss protection, citing “hostile” market conditions in June 2022.

The plaintiffs also argued that Bancor DAO is an “unincorporated general partnership” consisting of vBNT tokenholders and could be sued in that capacity, according to Law360.

The case was previously dismissed entirely because the protocol developers were not based in the United States, but was reopened in December.

The plaintiffs said that the DeFi platform “does not appear to be registered in any jurisdiction and has no physical office location, mailing address, officers, directors, or appointed agents.”

Bancor is an onchain liquidity protocol that enables automated, decentralized exchange across blockchains. It has $38 million in total value locked, a figure that is down 98% since its peak in May 2021, according to DeFillama.

Related: Lawsuits could be catastrophic for DAOs if denied ‘limited liability’

The ruling follows precedent from a similar case where the Commodity Futures Trading Commission won a default judgment against Ooki DAO.

A California federal judge also ruled in November that DAOs and their governing members can be sued in cases involving unregistered securities.

Magazine: Mystery celeb memecoin scam factory, HK firm dumps Bitcoin: Asia Express