Texas court issues $38M judgment against Bancor DAO

A Texas federal court has issued a default judgment against Bancor DAO after the decentralised finance (DeFi) platform failed to respond to a summons posted on its forum in January 2024.

Judge Robert Pitman ruled in favor of the plaintiffs, who alleged that Bancor misled investors about its liquidity protection mechanisms and failed to register its token as a security.

The lawsuit, filed in May 2023, claims that Bancor's impermanent loss protection (ILP) mechanism operated at a deficit during a 2022 liquidity crisis.

Investors argued that Bancor concealed these issues and launched its v3 product with promises of competitive returns “without asking users to take on any risk.”

However, Bancor paused ILP in June 2022, citing "hostile" market conditions, leaving investors exposed to significant losses.

The plaintiffs also argued that Bancor DAO functions as an “unincorporated general partnership” composed of vBNT tokenholders, making it liable for legal action.

The court clerk noted that Bancor DAO “failed to answer or otherwise defend itself within the time allowed,” leading to the default judgment.

This case highlights the legal vulnerabilities of decentralised organisations.

Bancor DAO’s lack of a formal structure—such as a physical office, mailing address, or appointed representatives—complicated legal proceedings.

The platform’s developers were initially dismissed from the case due to their non-U.S. residency, but the lawsuit was reopened in December 2024.

Bancor, an on-chain liquidity protocol facilitating decentralised exchanges across blockchains, has seen its total value locked (TVL) decline by 98% since its peak in May 2021.

Currently, its TVL stands at $38 million, according to DeFi analytics platform DeFiLlama.

The ruling follows similar legal precedents involving decentralised autonomous organisations (DAOs).

In November 2024, a California federal judge ruled that DAOs and their governing members could be held accountable for unregistered securities violations.

Additionally, the Commodity Futures Trading Commission (CFTC) secured a default judgment against Ooki DAO under similar circumstances.