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Bitcoin The Courts

Crypto-Savings Lawsuit Puts Principles of DeFi To the Test (wsj.com) 33

Posted by msmash from the closer-look dept.
The emerging world of decentralized finance offers the holders of cryptocurrency many of the amenities of a modern financial system, under the premise that blockchain technology can cut out the middlemen, replacing flesh-and-blood bankers with autonomous, self-governing computer programs. The model promises lower costs and greater access. It also begs the question: Who's responsible when things go wrong? From a report: That is the question being raised by a class-action lawsuit filed in New York federal court against one such novel DeFi service, a cryptocurrency savings application called PoolTogether. The application, described as a "no loss prize game," incentivizes users to save their cryptocurrencies by offering them the chance to win awards from the interest generated by the collected funds. The lawsuit, filed by a software engineer named Joseph Kent, has challenged the legality of PoolTogether's operation, saying the scheme is essentially a lottery and prohibited under New York law.

Although Mr. Kent's lawsuit, supported by two plaintiffs' law firms, is nominally focused on winning a potentially large pot of financial damages, it also appears to be a deliberate effort to put some of the DeFi community's core doctrines to the test. A former technology lead for Sen. Elizabeth Warren's 2020 presidential campaign, Mr. Kent is described in his lawsuit as someone "gravely concerned" at the prospect that cryptocurrency, which consumes voluminous amounts of electricity, could contribute to climate change, besides enabling bad actors to circumvent financial sanctions. The size of the DeFi market has grown precipitously in the last year, bringing closer attention from the U.S. Securities and Exchange Commission and other regulators. The total value of assets deposited as collateral on DeFi platforms climbed to more than $111 billion in November, up feverishly from about $10 billion at the beginning of 2020, according to DeFi Pulse.
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Crypto-Savings Lawsuit Puts Principles of DeFi To the Test More

Crypto-Savings Lawsuit Puts Principles of DeFi To the Test

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  • Interest? (Score:5, Interesting)

    by bobm ( 53783 ) on Thursday January 13, 2022 @12:50PM (#62170149)

    I'm curious how the interest would work? With a bank it's assumed that my money is loaned out to people who pay interest for using it (simplified) but if this is just a coin storage facility where does the interest come from?

    • Re: (Score:1)

      by Anonymous Coward

      how the interest would work?

      From TFA

      In the PoolTogether version, the protocol generates interest on cryptocurrency deposits by farming those funds out to third-party lenders.

      Why "lenders" can't simply raise deposits themselves is an exercise for the reader.

    • The same. You can deposit funds and earn interest but then you can also use that deposit as collateral and take out a loan. The rates are governed by how much is deposited or borrowed. That's how most defi protocols work but I don't know anything about PoolTogether.

      For those of you who think bitcoin has no value and is going to zero, defi is your opportunity to short it. AAVE currently has bitcoin loans at 0.26 APY. Borrow some, then sell it.

      https://app.aave.com/#/markets [aave.com]

      And if you use AAVE on the Poly

  • In case you were wondering why there are so many (Score:4, Informative)

    by waspleg ( 316038 ) on Thursday January 13, 2022 @12:55PM (#62170165) Journal

    crypto stories. this is the company that owns slashdot [bizx.com] they do business to business crypto "bartering" in what appears to be a thinly veiled attempt at dodging taxes.

    • Re: (Score:2)

      by shanen ( 462549 )

      Thanks for that bad news? Though I previously read a number of similar reports.

      "This is not the business model you were looking for."

      To be filed under monkey business, but not funny monkey business because this might be the vampire owner who finally drives the stake into Slashdot's heart... In the absence of a viable business model, I'm not even sure Slashdot actually qualifies as something to be owned. I'm reminded of a fairly prominent magazine that evolved into a portable nuisance, with a series of "owne

      • Re: (Score:2)

        by waspleg ( 316038 )

        yea, it makes me sad, I've been here since the mid/late 90s, I even still have a bunch of shit from thinkgeek.

  • GIGO, but ultimately a values difference (Score:1)

    by Anonymous Coward

    The Defi answer to "Who's responsible when things go wrong?" should always be "it never goes wrong. The system works as designed." (If you can't measure up to that, then even anarchists aren't going to like you.) There's also the "garbage in, garbage out" principle so if you see garbage, the responsible entity is whoever put it in.

    That's the dorky way to look at it, and it's not exactly wrong. But regulators will see it as wrong, because the regulations are the top ideal, and technically-correct operation i

  • Who responsible when things go wrong in defi? (Score:5, Insightful)

    by hdyoung ( 5182939 ) on Thursday January 13, 2022 @01:07PM (#62170195)
    Nobody. Nobody is responsible for anything. That's the whole point of defi. Everybody is a gun totin' rootin' tootin' libertarian I-follow-no-rules anarchist cowboy. The only laws that apply are the ones that you can enforce by trickery or violence. It's all very attractive to a certain type of person, until that person gets their life savings yoinked away by someone smarter than them. Then, suddenly, they start whining. "where's my due process...". In their most high-pitched, nasally, child voice.

    Which is why none of the smart/big money will be in it. Centralization has it's advantages.
    • Pretty much the same level of accountability as for traditional banking then. Global financial collapse = bonuses all around as usual (we have to retain top talent, especially in these challenging times)
      • No one likes the banks were bailed out, but banks are part of regulated finance. Hence governments bail them out. DeFi wants no part of government so why should government care when someone gets ripped off? You wanted DeFi, you got it.
    • And even if the intentions weren't nefarious, the defi is dependent on the contract not having any exploitable bugs. And how many hundreds of millions of dollars have been stolen due to defi bugs to date? Don't put your eggs in a basket where you're dependent on an anonymous programmer writing bug free code. I'd much rather have meat space laws, regulators, and judges as a safety net.

  • Who will pay to clean up the pollution generated by proof-of-work cryptocurrency? Every single use of electricity has a functional purpose... except cryptocurrency. It expends electricity just to maintain itself and pollutes the planet in the process.

  • No, it doesn't "beg the question" of who's responsible when something goes wrong.

    It RAISES that obvious question. "Begging the question" is a rhetorical fallacy used by lazy people trying to win an argument by using premises that presume the truth of their conclusion, rather than supporting that conclusion.

    Junior high school level writing stuff.

  • Mr. Kent is described in his lawsuit as someone "gravely concerned" at the prospect that cryptocurrency, which consumes voluminous amounts of electricity, could contribute to climate change, besides enabling bad actors to circumvent financial sanctions.

    Variations of these talking points are being all but ritually chanted by activists, even though they're not true. Crypto as a category is not energy inefficient. In fact, many of the top 15 cryptos are no worse than Visa or MasterCard in energy use if not bet

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