Joseph Kent, a software engineer and former technology lead during Elizabeth Warren’s presidential run, has filed a class action lawsuit against PoolTogether.
Kent allegedly staked $10 worth of cryptocurrency into the platform before filing the lawsuit against the DeFi company. Kent’s lawsuit claims that PoolTogether is running an illegal lottery and has been filed with the New York federal court.
The class action lawsuit is on behalf of Kent and all other PoolTogether users.
Under the law, the defendants may be liable for as much as double the value of the total entries into the lottery. PoolTogether users have deposited more than $122m in cryptocurrencies into the various staking pools.
PoolTogether is one of the oldest DeFi platforms and allows users to stake cryptocurrencies for a chance to win big prizes. Unlike a typical lottery, users do not pay to enter the competition and all tokens can be fully withdrawn without loss.
These prize pools are typically created by various cryptocurrency projects to offer their holders a chance to win tokens while lowering the overall circulating supply via staking.
The class action lawsuit will target whether PoolTogether’s smart contract is considered an investment scheme. PoolTogether is a decentralized set of smart contracts and anyone can set up a lottery pool with their own rules.
The platform is operated and maintained by users who hold PoolTogether’s native token, POOL, and vote on changes made. PoolTogether will likely argue that they do not control the platform and therefore do not have ownership of it.
PoolTogether will likely also claim they cannot be considered a lottery because there is no loss of funds for entry. The entry into these pools is free and all tokens can be withdrawn without penalty.
Decentralized Finance falls into a gray area when it comes to regulations in the US. As PoolTogether is registered in Delaware, this class action lawsuit could be the beginning foundation of regulatory compliance with smart contracts and decentralized finance.
We will be following the outcome of this class action very closely and will report the results and how this will impact future regulations on decentralized finance smart contracts.