MakerDAO’s $30 Million Lawsuit Sent for Arbitration

A small lull seems to have occurred in the lawsuit that was launched against MakerDAO. The group has been accused of falsely presenting the risks that are associated with its stablecoin DAI. This lull is because the case is stayed because of pending arbitration proceedings. The Maker Ecosystem Growth Foundation and Judge Maxine Chesney came to an agreement regarding the class-action lawsuit to first enter arbitration proceedings before moving forward. The lawsuit is in relation to the crash that came to be known as ‘Black Thursday, in which the entire cryptocurrency industry saw its value fall by half, which caused the DAO to simply just collapse on itself.

The motion had been filed by the Maker Foundation for compelling the case into arbitration. It came as a response when a user of MakerDAO named Peter Johnson, who ended up filing a lawsuit against the group because he had to deal with six-figure losses. These massive losses occurred because the protocol had suddenly been rendered undercollateralized in March, due to the crypto market crash in the wake of the COVID-19 pandemic. The market crash was so severe that it came to be known as ‘Black Thursday’ and every cryptocurrency saw their value go down. 

In an order that was filed on September 25th, 2020, judge Chesney said that first, it needs to be determined whether Johnson’s claims fall within the scope of an arbitration clause that is part of the terms of service of DAI. The investor had agreed to these terms of service back in 2018 and the American Arbitration Association will first review them before coming to any conclusion. In turn, Maker had put forward the argument that Johnson was violating the terms he had agreed upon. According to Maker, the agreement states that the investor could pursue his claims via arbitration, if required.

Instead, Johnson had opted for the putative class-action lawsuit, which Maker claims is a violation of his agreement. In addition, Johnson has not made any mention of this agreement in the filing of his lawsuit. Furthermore, the Court has also chosen to reject the counter-argument that Johnson presented. He said that the agreement that had been made in 2018 was an outdated and abandoned product, and said that this was just a tactic for sidestepping litigation. Granted, it is not hard to imagine that someone would be extremely upset if they suddenly ended up losing a whopping $200,000 in ETH. 

As a matter of fact, many people would end up filing for a lawsuit based on this damage alone. When Black Thursday happened, ETH saw its value cut down in half in a matter of two days. In turn, a huge number of MakerDAO users had to deal with liquidations because the protocol itself was collateralized on ETH. Johnson filed the lawsuit against MakerDAO on the 14th of April. In the lawsuit, he claimed that the structure of the MakerDAO’s protocol had been misrepresented deliberately in the terms of service for DAI. Hence, he is looking to be compensated for his losses.