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Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.
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A federal judge dismissed a class-action lawsuit that alleged investors on Maker, one of the largest decentralized finance protocols, suffered some $8 million in losses because the platform misrepresented risks, according to a court document filed on Wednesday.
The “Black Thursday” lawsuit filed in April 2020 claimed that Maker-related entities including Maker Ecosystem Growth Foundation misrepresented collateralized debt positions on the platform as more secure investments than other assets because they required over-collateralization, CoinDesk reported at the time.
The Maker Ecosystem Growth Foundation was dissolved as part of a strategy helmed by founder Rune Christensen to decentralize the protocol, handing operations over to a decentralized autonomous organization called MakerDAO.
Judge Maxine M. Chesney of the U.S. District Court for the Northern District of California dismissed the complaint, saying that “Maker Growth [Foundation] is not a proper defendant because it has been dissolved, and therefore lacks capacity to be sued,” and that the “plaintiff has failed to allege facts sufficient to support each of his claims for relief.”
This was the second amended version of the complaint.
Maker is a lending protocol, where users can withdraw loans in the platform’s native stablecoin dai (DAI) by pledging assets such as ether (ETH) as collateral. Borrowers must maintain a certain collateral level to avoid liquidation. To counter volatile crypto prices, Maker requires loans to be over-collateralized, meaning borrowers have to lock up a higher value of assets than their debt.
But Peter Johnson, the lead plaintiff, claimed that Maker advertised the over-collateralization policy as a safeguard that caps losses at 13% and that the collateral would return to users. When ETH’s price sharply dropped in March 2020 during a market-wide crash, his position and that of many others on the platform were liquidated, Johnson alleged.
The suit alleged that investors suffered a total of $8.3 million in losses, and sought compensation and punitive damages of $20 million.
Plaintiffs may amend the complaint and file a third version until March 17, “as there is no showing the deficiencies noted above cannot be cured,” the judge said.
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Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.
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Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.
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A United States judge has dismissed the lawsuit filed against the cryptocurrency loan giant, Maker, a decentralized finance (DeFi) platform, by many crypto investors following the collapse of ETH prices and the subsequent devaluation of one of Maker’s tokens.
The suit, filed in November 2020 in the United States by crypto investors, sought damages of up to US$28 million. The crypto investors’ lawsuit followed Maker’s decision, which was made on March 12th, 2020, to reduce the total stability fees of its MKR tokens — a mechanism in DeFi that ensures the stability of the underlying asset — by nearly 50%.
According to the investors, the price of ETH (which was used as collateral for the Dai stablecoin) dropped by more than 50%, resulting in their MKR tokens becoming practically worthless. The plaintiffs accused Maker of hiding the risks posed by the DeFi platform and misleading investors as to what would happen in a bear market scenario.
However, the judge found that the Maker platform was fully transparent about the mechanics at work within its DeFi system and that Eth’s price decline was not foreseeable. The judge also noted that given the circumstances, the sale of MKR tokens was still a valid market transaction.
The dismissal of the lawsuit underscores the caution that investors should exercise when making any investments, particularly those in the volatile cryptocurrency market. It also highlights the importance of doing extensive research about an investment opportunity before parting with one’s money.
