- SushiSwap has received a subpoena from the US Securities and Exchange Commission (SEC), signaling a broader crackdown on DeFi projects and tokens.
- The SushiSwap community has submitted a proposal to establish a $3 million legal defense fund to cover potential legal costs and protect the platform’s financial solvency.
- The SEC’s subpoena may signal a regulatory trend that could impact other decentralized exchanges (DEXes) and decentralized autonomous organizations (DAOs) in the future.
SushiSwap, the popular Ethereum-based decentralized exchange, disclosed on Tuesday that it had received a subpoena from the Securities and Exchange Commission (SEC). The SEC’s interest in SushiSwap marks another step in the regulator’s enforcement actions against cryptocurrency platforms and decentralized finance (DeFi) projects. The subpoena could lead to regulatory enforcement action against the platform, making this a critical moment for the DeFi community.
As reported by André Beganski, SushiSwap’s disclosure took the form of a proposal submitted to the Sushi DAO, calling for establishing a legal defense fund to cover potential legal costs. The proposal stated that both Sushi and Head Chef Jared Grey had been served with an SEC subpoena, and they were cooperating with the SEC. Following the disclosure, SushiSwap’s SUSHI token experienced a 5% drop in value, falling from $1.22 to $1.14 within an hour.
SEC’s Broader Crackdown on Crypto
The SEC has recently intensified its scrutiny of cryptocurrency with several high-profile enforcement actions against various projects and platforms. Examples include fining the Kraken cryptocurrency exchange over its staking product and suing Terraform Labs’ founder and CEO, Do Kwon, for alleged securities fraud. With the SEC’s increased focus on DeFi projects and tokens, SushiSwap’s recent subpoena may signal a broader regulatory trend that could impact other decentralized exchanges (DEXs) and decentralized autonomous organizations (DAOs) the future.
In response to the SEC’s subpoena, SushiSwap’s community is rallying with a governance proposal seeking to establish a legal defense fund. The proposal recommends making $3 million in Tether’s USDT stablecoin available to cover legal expenses related to inquiries, litigation, and other issues targeting core contributors. Additionally, the proposal includes a contingency plan to make another $1 million worth of USDT available if the initial funds are depleted.
At the time of writing, the proposal had 850 page views, and several DAO members had already engaged in discussions about the SEC’s approach to enforcement against DAOs. DAOs, unlike traditional centralized organizations, operate using a flat governance structure and rely on smart contracts to manage decision-making processes. One DAO member, Test1, speculated whether the SEC’s subpoena targeted Grey directly to enforce action against a DAO. In response, another member, Miohtama, suggested that the SEC might aim for easy victories and focus on individuals within the US.
DAOs Facing Legal Troubles
This is not the first time a financial watchdog has pursued legal action against a DAO. In September last year, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Ooki DAO, the organization behind the Ooki Protocol, a decentralized finance platform. That lawsuit raised important legal questions for DeFi founders and DAO members alike. In December, a California court ruled that the CFTC must serve specific individuals in a DAO, not the DAO.
Despite its challenges, SushiSwap remains a prominent player in the DeFi space, ranking 14th among other decentralized exchanges in daily trading volume, with an average of $30.7 million. The most popular trading pair in the business is Ampleforth (AMPL) and wrapped Ethereum (wETH), accounting for 28% of its daily trading volume.
As the SushiSwap community awaits the outcome of the legal defense fund proposal, this development serves as a reminder of the shifting regulatory landscape for DeFi projects and DAOs. The actions of the SEC and other financial regulators in the coming months could significantly impact the future of decentralized finance.
