The U.S. Securities and Exchange Commission (SEC) has finalized a settlement with BarnBridge DAO, the governing entity of a decentralized finance (DeFi) protocol. This settlement includes a $1.4 million disgorgement and civil penalties totaling $250,000 against the founders.
BarnBridge DAO operated a protocol allowing users to swap variable annual percentage yields (APYs) from money markets for fixed APYs. The protocol’s governance token, BOND, distributed to liquidity providers in Uniswap pools, formed the organization’s backbone.
However, the SEC’s cease and desist order claims that BarnBridge and its founders, Tyler Ward and Troy Murray, promoted “SMART Yield Bonds.” These investment products offered a fixed rate of return from a pool of assets, engaging in transactions with yield-bearing assets from third-party lending platforms.
Revenue Distribution and Charges
Senior investors were promised a fixed rate, while Junior investors received variable rates. The SEC highlighted the 5% profit fee charged to SMART Yield Bond investors, which was funneled into the BarnBridge DAO Treasury. These funds covered various business expenses, including the founders’ salaries.
The SEC identified the SMART Yield Investment Pools as “Unregistered Investment Companies,” requiring registration under the U.S. Investment Company Act. BarnBridge DAO, deemed the operator of these pools, failed to register, leading to the enforcement action.
This settlement marks a significant moment in the ongoing debate and legal scrutiny surrounding decentralized finance and its compliance with regulatory frameworks. The future of BarnBridge DAO and similar DeFi entities now depends on navigating these complex legal landscapes.
Also Read: SEC Investigation Halts BarnBridge DAO’s DeFi Operations