Saturday, December 5, 2020
Home Cointelegraph News $30M MakerDAO 'Black Thursday' lawsuit sent to arbitration

$30M MakerDAO 'Black Thursday' lawsuit sent to arbitration

A court has agreed with the Maker Ecosystem Growth Foundation that a class-action lawsuit over its ‘Black Thursday’ meltdown should enter into arbitration proceedings.

The Maker Foundation filed this motion to compel arbitration in response a lawsuit filed by MakerDAO user Peter Johnson in April after he suffered six-figure losses as a result of the protocol becoming undercollateralized in March.

In a September 25 order, Judge Maxine Chesney found that the American Arbitration Association must determine whether Johnson’s claims fall within the scope of an arbitration clause included in DAI’s terms of service that the investor agreed to in 2018.

Arbitration clause in DAI’s 2018 terms of service: CourtListener

Maker argued that Johnson is acting in violation of the terms he agreed to, stating:

“In bringing this putative class action, Plaintiff ignores his promise to pursue his claims through arbitration, failing to mention the arbitration agreement to which he affirmatively agreed.”

The court rejected Johson’s counter-argument, which described Maker’s “invocation of a 2018 agreement for an outdated, now abandoned product” as an opportunistic ploy to sidestep litigation.

The case has been stayed until the arbitration proceedings have been concluded, vacating the upcoming hearing scheduled for October 2.

The MakerDAO protocol allows users to mint the stablecoin DAO against Ether (ETH) deposits at a margin of up to 75%, and sets a liquidation price to ensure that the collateral held by the protocol exceeds the outstanding DAI supply.

When the price of ETH fell more than 50% in less than two days during mid-March, hundreds of MakerDAO users faced total liquidations as the protocol became undercollateralized.

Johnson filed the lawsuit on April 14, 2020, claiming that DAI’s terms of service had deliberately misrepresented the structure of the MakerDAO protocol to downplay the risks associated with using the protocol. The lawsuit seeks nearly $30 million in damages.

Johnson claimed to have lost more than $200,000 worth of ETH amid the sharp mid-March crash that saw his 1,713.7 Ether in collateral liquidated at $121 each, arguing that Maker’s terms had indicated liquidations would only incur losses of 13%:

“The Maker Foundation and other third-party user interfaces informed users that, because their CDPs would be significantly overcollateralized, liquidation events would only result in a 13 [percent] liquidation penalty applied against the remaining collateral, after which the remaining collateral would be returned to the user.”

On September 22, MakerDAO’s decentralized governance voted against proposals to reimburse the protocol’s users who had suffered losses amid Black Thursday.

Popular Articles

Tron’s Daily Active TRX Wallets Hit All-Time Highs in November

Quick take: The number of daily active Tron wallets hit an all-time high in November According to DappRadar, this figure exceeded 150k Tron’s total transaction volume in...

Bitcoin Cash, Ontology, Enjin Price Analysis: 05 December

Bitcoin saw a dip from $19,500 to $18,500 in the past couple of days and was trading at $18,919 at the time of writing.... Gains Ability to Issue Cards in Australia

Prominent crypto fintech firm has disclosed plans to issue its debit cards in Australia. recently obtained an Australian Financial Service License (AFSL). This...

Who Has How Much Bitcoin?

Bitcoin and its underlying tech are some of the most popular financial innovations of the 21st century. The crypto has been touted as having...

It’s time to mature: We need compliant decentralized finance

The crypto space is an incredible, albeit risky, learning environment. Its volatility serves as a dire warning to those who like to test how...

Darknet Market Crypto Revenues Hit All-Time Highs in 2020

A study revealed that darknet markets have astonishing figures so far in 2020, despite the coronavirus pandemic, but the dynamics changed compared to the...