In a landmark case highlighting the increasing regulatory scrutiny of decentralized autonomous organizations (DAOs), the U.S. Securities and Exchange Commission (SEC) has charged Mango Markets DAO for the unregistered sale of its MNGO tokens. Mango Markets, a prominent decentralized trading platform, allegedly raised more than $70 million through the sale of these governance tokens without adhering to proper registration procedures.
SEC's Actions Against Mango DAO
The SEC alleges that Mango Markets conducted unregistered offerings and sales of its MNGO tokens, violating federal securities laws. The agency’s complaint argues that Mango DAO and its affiliates solicited and recruited users for its platform, allowing them to trade what the SEC considers securities. The platform’s governance token, MNGO, which gives users voting power in the DAO, was marketed globally without registering the tokens as securities with the SEC.
Moreover, the SEC asserts that Mango Labs LLC and Blockworks Foundation, both involved in Mango Markets, acted as unregistered brokers. They allegedly facilitated securities transactions by helping customers open accounts, manage funds, and make investments on the Mango Markets platform. As part of the settlement, Mango Labs and Blockworks Foundation agreed to cease their activities, pay nearly $700,000 in civil penalties, destroy their MNGO tokens, and request that trading platforms delist the token.
CFTC Involvement and Settlement Proposal
In addition to the SEC’s charges, Mango Markets DAO faces scrutiny from the U.S. Commodity Futures Trading Commission (CFTC). The CFTC claims that the DAO and its affiliated entities violated provisions of the Commodity Exchange Act by not registering as a futures commission merchant. In response, Mango DAO has submitted a $500,000 settlement offer to the CFTC, including a cease-and-desist agreement to resolve these allegations. The settlement would bring an end to a non-public investigation by the CFTC and signal a shift in how DAOs will be regulated under commodities law moving forward.
Implications for DAOs and Crypto Projects
This case underscores the importance of regulatory compliance in the decentralized finance (DeFi) space. The SEC has consistently stated that labeling an organization as a DAO does not exempt it from securities laws. In fact, the acting chief of the SEC’s Crypto Asset and Cyber Unit emphasized that using open-source software or decentralized governance does not alter the regulatory requirements for issuing securities.
This legal action signals that DAOs and other crypto projects will face increased scrutiny from U.S. regulators, especially in cases where token sales are involved. Projects like Mango Markets, which leverage governance tokens, may now need to reconsider their approach to ensure full compliance with both the SEC and the CFTC.
What’s Next for Mango Markets?
As part of its settlement, Mango Markets DAO has agreed to destroy all remaining MNGO tokens and cease any solicitation to trade the token on other platforms. It remains to be seen how this will affect Mango Markets’ operations and its community of users, who played a significant role in the platform’s decentralized governance model.
Additionally, this case could set a precedent for how the U.S. government will handle future DAO-related cases, particularly regarding the sale and management of governance tokens. It also reinforces the growing importance of regulatory frameworks for DeFi and blockchain projects that aim to operate in compliance with U.S. laws.
