Key takeaways:
- The US SEC and BarnBridge, the governing body of the DeFi protocol, have reached a settlement.
- BarnBridge DAO, the entity that is the respondent in the SEC enforcement case, comprises all BOND token holders collectively.
The US Securities and Exchange Commission (SEC) and BarnBridge, the governing body of the decentralized finance (DeFi) protocol, have reached a settlement.
As part of the agreement, the financial regulator has announced on December 22 that BarnBridge will no longer offer or sell structured finance crypto products unregistered. One of the enforcement actions that the government has taken is issuing a cease and desist order.
BarnBridge offered a set return on deposits to consumers who exchanged variable annual percentage rates (APYs) from money markets for a fixed APY, according to the company’s financial documentation.
Based on the oldest surviving version of the Barnbridge docs, the protocol’s governance token, BOND, was first given out as a compensation to liquidity providers for Uniswap pools.
BarnBridge DAO, the entity that is the respondent in the SEC enforcement case, is made up of all BOND token holders collectively.
The SEC accuses BarnBridge DAO and its founders, Tyler Ward and Troy Murray, of marketing “SMART Yield Bonds,” a structured investment instrument that paid investors a fixed rate of return from an asset pool known as a “SMART Yield Investment Pool,” in its cease and desist order.
The pools exchanged investors’ assets for yield-bearing assets from “third-party lending platforms” to obtain the rate of return.
The investors in the “Junior” and “Senior” tranches received a portion of the ensuing revenue. According to the SEC, junior investors received a variable rate of return, while senior investors were assured a set rate.
Senior investors were compensated with Junior tranche assets if the rate of return was insufficient to pay out the entire set of rewards for the Senior tranches.
Conversely, Junior tranche investors received any excess revenue if the rate of return exceeded the amount required to compensate Senior investors. Thus, the protocol ensured Senior investors received a set rate while permitting Junior investors who were willing to take on more risk to receive higher returns when revenue increased.
The order states that 5% of the gains made by investors in SMART Yield Bonds were levied by BarnBridge DAO as a fee. This money was allocated to a smart contract known as the “BarnBridge DAO Treasury.”
The DAO decided how to allocate these treasury assets during the course of the protocol’s operation to cover a range of business expenses, including as blockchain transaction fees, website hosting fees, programmer contracts, and Ward and Murray’s wages.
According to the agency, the SMART Yield Investment Pools must register with the SEC since they are “Unregistered Investment Companies” under the terms of the US Investment Company Act. Furthermore, according to the SEC, BarnBridge DAO is obligated to complete this registration on behalf of the pools since it is the “operator” of these pools.
The notification states that BarnBridge DAO has been ordered by the SEC to use the money it has amassed in its treasury to pay a $1.4 million disgorgement to the US Treasury.
Additionally, it mandated that Ward and Murray pay $125,000 in civil fines apiece. It is mandated that the DAO refrain from breaking any more securities laws in the United States.
It appears that BarnBridge has not been operational since July 6. On that date, the DAO’s elected attorney, Douglas Park, announced on Discord that “existing liquidity pools should be closed, and no more liquidity pools should be started” due to the DAO being investigated by the SEC.
Ward made a public announcement in October announcing that the SEC had issued an order against the DAO. But because of the “non-public nature” of the proceedings, he was unable to provide documentation of the order. In response, the DAO voted to approve Ward, Murray, and Park’s compliance with the directive.
