BarnBridge DAO, a decentralized finance (DeFi) platform and its founders have agreed to a $1.7 million settlement with the Securities and Exchange Commission (SEC) for the unregistered offer and sale of their structured crypto asset securities, known as SMART Yield bonds.
The SEC announced the settlement, which includes a cease and desist clause preventing further sales of the crypto bonds, on Dec. 22.
The case reflects the watchdog’s ongoing scrutiny of DAOs in the evolving crypto market, emphasizing legal compliance irrespective of decentralized or autonomous structures.
SEC investigation
Founded in 2019, BarnBridge DAO emerged as a novel player in the DeFi space, aiming to mitigate risks associated with yield sensitivity and asset price volatility in cryptocurrency.
BarnBridge operates as a decentralized organization, meaning it lacks a central authority, and makes decisions through a voting system on the Ethereum blockchain using the BOND governance token.
The SEC started an investigation into BarnBridge DAO’s practices in July. This probe was triggered by the extensive marketing of SMART Yield bonds, which, upon examination, were found to be in non-compliance with securities registration requirements.
The bonds, likened to asset-backed securities, were broadly marketed to the public, including through social media platforms. Founders Tyler Ward and Troy Murray had actively promoted the investment potential of these bonds on various YouTube channels.
The DAO’s attorney Douglas Park disclosed the watchdog’s probe into BarnBridge’s activities to members the same month and advised them to halt product development and compensation.
Subsequently, a critical voting process was initiated within the DAO to decide on compliance with the SEC’s orders, including disgorgement payments and token distribution.
Regulating DeFi
The BarnBridge case is a part of the SEC’s broader regulatory focus on the crypto sector, especially DAOs, highlighting the importance of legal compliance in the rapidly evolving market.
SEC Director of Enforcement Gurbir S. Grewal emphasized that blockchain technology does not exempt organizations from securities laws. The settlement serves as a crucial reminder to entities in the crypto market of their obligations under these laws, regardless of their structure or technological foundations.
The BarnBridge case serves as a pivotal moment in regulatory oversight in the world of cryptocurrency, particularly for Decentralized Finance (DeFi) projects. It emphasizes the importance of compliance with regulatory laws and maintaining transparency in this complex and rapidly evolving sector.
