News

A new lawsuit tests DeFi’s principles and could define the future of the start – up sector

  • A new lawsuit has been filed against Pool Together, a cryptocurrency savings company that bets on savings accumulated by cryptocurrency holders.
  • The law against Pool Together could define the future of the sector and, if the protocol loses, could end DeFi in its early days.

Decentralized finances are booming. And while much of it has to do with the utilities that DeFi offers, it also has a lot to do with uncertainty, ambiguity, or a complete lack of direction for the industry. However, all of this may soon change, with a new lawsuit filed by aggrieved investors testing the ethics and principles on which DeFi is built.

The lawsuit has been filed in a federal court in New York and is against Pool Together, a cryptocurrency protocol that takes deposits from its users, lends them to other users and returns the interest, similar to how to BlockFi and Celsius.

However, while the loans have landed BlockFi and Celsius in hot water with U.S. regulators, the latest law does not refer to them. Rather, it has to do with the interest that Pool Together pays, or specifically, how it pays it.

Pool Together is presented as a «no-lose lottery». It basically does everything that BlockFi does, but instead of paying users their well-deserved interest, it runs lotteries and gives the common interest to some lucky users. Its founder, Leighton Cusack, prefers even a different name: «a prize-linked savings account.»

Pool Together is built on top of Ethereum using open source code. Cusack, the founder, does not exercise authoritative control over the platform. Instead, users who participate in providing liquidity by lending their cryptocurrencies earn native platform tokens that they then use to vote for the direction they want to take the protocol. These governance signs accumulate even if a user never wins the lottery. They can be sold like any other cryptocurrency on exchanges and their value rises up and down, just like Bitcoin or Ethereum.

Pool Together has grown since its inception and has hundreds of millions of dollars in smart contracts, paying over $ 100,000 in prizes (or trophies) per week to lucky winners.

And while more investors came to the platform, they were not all that excited, with one of them suing the protocol.

The DeFi law against Pool Together

In the lawsuit, the investor, known as Joseph Kent, argues that despite presenting himself as a DeFi platform, Pool Together is a lottery, and is banned in New York state.

Kent is a former technology leader in the failed 2020 presidential campaign of Elizabeth Warren.

While the lawsuit focuses on the weekly Pool Together lottery, which it says is illegal, it will also be crucial in determining what regulators think about DeFi. It will therefore decide whether an individual should be legally responsible for the activities of the DeFi platform. In this case, Cusack says Pool Together is run by voucher holders.

Carlton Green, an attorney at Crowell & Moring LLP and a former anti-money laundering regulator, told the Wall Street Journal:

How courts and regulators respond to these unique aspects of DeFi remains an open question.

The Pool Together team, and its investors, argue that the legal case is frivolous and driven by political ambitions and a lack of understanding of DeFi.

Cusack criticized the lawsuit, saying:

This has been put in by someone who works in politics and the stated motivation is that cryptocurrencies are bad for the environment. It is clearly written by someone who does not understand how the protocols work or even what the common pool as a whole is.

Escher Booko

I am fascinated by the complex possibilities of blockchain technology and try to make the subject accessible to everyone. My goal is to make the world aware of cryptocurrencies in a simple and understandable way. I believe that cryptocurrencies and blockchain technology will have a great positive impact on people's lives.

Latest Publications