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A lawsuit against MakerDAO by the users of the stablecoin
A lawsuit against MakerDAO by the users of the stablecoin
Stable Coin

A lawsuit against MakerDAO by the users of the stablecoin

By Marco Cavicchioli - 15 Apr 2020

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Some users of the MakerDAO stablecoin, i.e. DAI, filed a complaint about the losses suffered on March 12th. 

The lawsuit was pursued by Peter Johnson, represented by Harris Berne Christensen LLP of Portland, against the Maker Foundation in the Northern District Court of California and could involve up to 3,000 investors. 

In addition to the Maker Foundation, the Maker Ecosystem Growth Foundation, the DAI Foundation and the Maker Foundation are also involved. 

The allegation is that they “intentionally misrepresented the risks associated with CDP ownership”, causing investors to lose $8.325 million. According to the plaintiff, the causes were negligence, willful misrepresentation and negligent misrepresentation.

In addition, Johnson hopes that at least another 1,000 investors involved will join the lawsuit and also seeks damages of $20 million, plus interest and other costs. 

The issue arose on March 12th, 2020, when the value of ETH plummeted, along with that of all cryptocurrencies and global financial markets. 

This collapse led to the automatic liquidation of many CDPs opened by those who had provided ETHs as collateral to obtain DAI loans. 

In fact, these loans are disbursed only by depositing collateral whose value far exceeds that of the DAI borrowed, and such collateral is liquidated when its value is no longer sufficient to secure the loan. 

The problem is that the value of DAI is constant, always very close to 1 US dollar, while on March 12th the value of ETH (DAI’s main collateral) collapsed. 

This collapse caused the automatic liquidation of a lot of ETH as collateral, leading to real losses for the owners of those ETH. 

According to Johnson, it was promised that in cases such as this one the collateral would only be liquidated up to a maximum of 13%, although many positions were liquidated completely or almost completely. 

In fact, that 13% is not a certainty, but a percentage that depends on the conditions of the system and the market, while the plaintiff claims that it is advertised as the highest possible percentage of the collateral liquidation. 

He therefore accuses the Maker Foundation of deceptive advertising which would have caused him a loss of $200,000 in ETH. 

The Maker Foundation has not provided a response regarding its current position with respect to these allegations, but a few days ago a governance survey among MKR token holders approved the repayment of investors who suffered unjustified liquidations in mid-March.

The case is unfolding, though the assumptions on which it is based are well known and evident to everyone. It will remain to be seen whether the Northern District Court of California recognizes misconduct in the operation of the Maker Foundation. 

Marco Cavicchioli
Marco Cavicchioli

Class 1975, Marco teaches web-technologies and is an online writer specializing in cryptocurrencies. He founded ilBitcoin.news, and his YouTube channel has more than 11 thousand subscribers.

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