A federal judge dismissed a class action lawsuit alleging that Maker, one the largest decentralized finance protocols, caused investors to suffer losses of $8 million. According to a report, a court document Filed Wednesday.
The “Black Thursday” Lawsuit filed in April 2020 claimed that Maker-related entities including Maker Ecosystem Growth Foundation misrepresented collateralized debt positions on the platform as more secure investments than other assets because they required over-collateralization, CoinDesk reported at the time.
Maker Ecosystem Growth Foundation was disbanded as part of Rune Christensen’s strategy to decentralize the protocol and hand over operations to MakerDAO, a decentralized autonomous organisation.
Continue reading: MakerDAO Foundation plots its own demise
Judge Maxine M. Chesney of U.S. District Court, Northern District of California rejected the complaint and stated that “Maker Growth” was the reason. [Foundation] It is not a proper defense because it has been dissolved and cannot be sued.” The “plaintiff failed to allege sufficient facts to support each of his relief claims.”
This was the second amended complaint.
Maker is a lending protocol that allows users to withdraw loans using the native stablecoin dai of the platform (DAI). Users can also pledge assets like ether (ETH), as collateral. To avoid liquidation, borrowers must keep a certain level of collateral. Maker has made it mandatory that loans be adequately collateralized to counter volatility in crypto prices. This means that borrowers must have assets with a greater value than their debt.
But Peter Johnson, the lead plaintiff, claimed that Maker advertised the over-collateralization policy as a safeguard that caps losses at 13% and that the collateral would return to users. Johnson claimed that Johnson lost his position along with many others on the platform when ETH’s value plunged sharply in March 2020, during a market crash.
Continue reading: MakerDAO users sue Stablecoin issuer following ‘Black Thursday’ losses
Investors were alleged to have suffered losses totalling $8.3M. The suit sought damages and punitive damages in excess of $20M.
The judge stated that plaintiffs can amend the complaint and file a new version up to March 17 “as long as there is no evidence that the deficiencies noted above cannot been cured.”