The Maker Foundation’s troubles don’t seem to fade away, as it faces a class-action lawsuit after its protocol malfunction on March 12th. This meltdown contributed to a massive fall in the crypto market, which saw a 50% fall in the price of Bitcoin, for example.
A group of investors has filled another class-action lawsuit against the Maker Foundation and its associate in the Northern District Court of California. The class-action lawsuit aims to obtain more than $28.3 million in damages.
The lawsuit alleges that the Maker Foundation, along with Maker’s Ecosystem Growth Foundation, the DAI Foundation and the Maker Foundation both intentionally downplayed the risks involved with Collateralized debt positions (CDPs). Resulting in investors losing $8.5 million on March 12th. The complaint states:
“While misrepresenting to CDP Holders the actual risks they faced, The Maker Foundation neglected its responsibilities to its investors by either fostering or, at the very least, allowing the conditions that led to Black Thursday, all after actively soliciting millions of dollars of investment into its ecosystem.”
The main plaintiff in the case – Peter Johnson – will be represented by Harris Berne Christensen LLP, has filed three counts, which include: negligence, intentional misrepresentation and negligent misrepresentation in connection with the losses incurred by the investors.
MakeDAO has not tried to downplay the incident and has promised to look into the issue and address all the queries as directly as possible. However, they denied commenting on any of the lawsuits filed against the firm.
The Black Thursday Mayhem
The DeFi ecosystem works on top of the Ethereum ecosystem, where Ether is used as the main digital asset for collateral in the MakerDAO protocol, and DAI stablecoin is minted against the collateralized Ether.
On March 12th, just like any other asset, Ether’s price dropped suddenly and significantly leading to congestion on the Ethereum network. This simultaneously liquidated thousands of Collateralized debt positions (CDPs) on the DeFi platform.
Johnson has alleged that the project’s white paper assured investors that their collateral would be returned in case of a 13% drop. However, that did not happen, and a majority of these CDPs were completely liquidated contrary to assurances.
He further claimed that not just MakerDAOs Defi protocol, but its products including the popular decentralized application, Oasis claimed 13 percent penalties, being the highest strike for liquidation.
The complaint also mentions the Maker Foundation’s recent push for attracting investment through these CDPs in the form of educational efforts in association with the crypto exchange – Coinbase.
“The Maker Foundation and other third-party user interfaces informed users that, because their CDPs would be significantly overcollateralized, liquidation events would only result in a 13 [percent] liquidation penalty applied against the remaining collateral, after which the remaining collateral would be returned to the user,”
Johnson asserts that these advertisements for CDP investment intentionally excluded the risk involved with CDPs, which led to a personal loss of $200,000 in ETH.
Maker Foundation Call For Compensation of Liquidation Losses
The investors might have filed the lawsuit against the Maker Ecosystem for not revealing the risks associated with CDPs. However, the Maker community is working on partial compensation of losses for investors.
The foundation also conducted a governance poll on April 13 which led to the decision of partial refunding. Another governance poll in the coming week could decide the mode of currency through which the refunding will be initiated.
Johnson also revealed that he was aware of the refunding governance vote, but said that he was skeptical whether the vote would result in any form of real compensation.
Here is the full document: