Bancor DAO hit with class-action suit over impermanent loss protection promises

A group of investors has filed a class action lawsuit against the decentralized autonomous organization (DAO) Bancor; its operator, BProtocol Foundation; and its founders in the United States District Court for the Western District of Texas. plaintiffs sayamong other things, that Bancor misled investors about its ILP mechanism for liquidity providers and was an unregistered security.

According to the lawsuit, Bancor's investment product v2.1, introduced in October 2020 and the second to file ILP, was operating at a deficit that the defendants were aware of and tried to cover. launch of a new product, v3that promised “some of the most competitive returns in the world […] without asking users to take any risk.”

Impermanent loss occurs within the decentralized finance automated market maker model when a liquidity provider deposits assets into a pool and one of the tokens involved loses value against another in the pool. It is called impermanent because trading conditions can later restore the value of the token. The loss is not realized unless the investor withdraws the token from the pool.

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On June 19, 2022, Bancor experienced an increase in withdrawals, leading to a "pause" in ILP. Investors could still withdraw their assets, but they experienced the losses that ILP was meant to avoid. This led to “losses close to 50% of their LP [Liquidity Provider] Program Investment,” amounting to tens of millions of dollars for US retail investors, according to the lawsuit.

co-founder of @bancor and founder of @BBSnetworkIO—@eyaltalks about how BBS Network uses a "carrier model" in #EOS to give users more control over their own data.

Watch the full interview here: https://t.co/HNVK4Mau1Z

pic.twitter.com/3txejF2h4u

— EOS Network Foundation (@EOSnFoundation) May 9, 2023

In addition, the plaintiffs allege that the founders of the DAO maintained control of the DAO:

“Although Bancor is purportedly run by a decentralized autonomous organization (“Bancor DAO”), Defendants retain near-total control over Bancor, both directly (control over its capital, employees, and code) and indirectly (dominance and manipulation of the Bancor DAO). . ).”

They also state that Bancor's LP Program "is a binding investment contract and security under US law." Besides:

“Had Defendants complied with applicable registration and disclosure requirements, Plaintiffs and other class members would not have invested in the LP Program.”

The plaintiffs bring six counts against the defendants for violations of the Securities Act of 1933 and the Stock Exchange Act of 1934, as well as breach of contract and unjust enrichment. They demand restitution, damages and interest.

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