Bancor DAO (Decentralized Autonomous Organization) has received a lawsuit on behalf of a class of investors. BProtocol Foundation, the operator of the DAO, has also been named as one of the accused along with the organization’s founders. The claim was filed in Texas’ Western District’s District Court of the United States.
The Claim Against Bancor DAO
Among the claim of the plaintiffs is one that alleges Bancor fooled investors regarding its ILP (impermanent loss protection) mechanism that was available for providers of liquidity. They also claimed this made it a security that was unregistered.
As per the lawsuit’s words, the investment product of Bancor’s v2.1. The product was first introduced in 2020, October and was the 2nd-ever product to have ILP. The lawsuit claimed that the defendants knew about this mechanism running while incurring a loss. Moreover, the accusers claim that Bancor attempted to hide this fact by releasing v3, another new product that promised an extremely competitive return without the need to take any risks on the part of the users.
Impermanent loss takes place within a decentralized finance’s automated model of market making when a provider of liquidity puts their assets in a pool, wherein a token that is involved gets devalued against a different one inside that pool. The term impermanent is given because conditions in tradition can see the token’s value restored later. The loss remains unrealized until the devalued token in the pool is withdrawn by the investor.
On June 19th, 2022, a withdrawal spike was reported by Bancor. This led to the ILP being paused. Investors were still allowed to withdraw assets. However, losses that would have been otherwise prevented by the ILP started to occur. This resulted in several ten million dollars of loss for retail investors in the United States as per the information on the suit.
