PoolTogether Case Dismissed: Unresolved Questions in Crypto Regulation and Consumer Protection

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A year and 7 months after it was filed, the case of Joseph Kent v. PoolTogether and its backers has been dismissed by a Brooklyn federal court judge. The central question at issue — whether the PoolTogether protocol constitutes an illegal lottery under New York law — was not addressed, due to the judge ruling that the plaintiff, Kent, lacked standing to sue.

PoolTogether was started in 2019 by Leighton Cusack, Brendan Asselstine, and Chuck Bergeron, with Cusack being named as a defendant in the suit. Although Cusack expressed happiness with the hearing, he anticipates that his legal challenges are likely not over. He mentioned that there is still a good chance they would refile the case or an amended complaint in state court.

Just over a year ago, PoolTogether’s Cusack had raised 1.5-million dollars for a legal defense fund using NFTs purchased by over 4,200 unique wallets. Kent, who led a technology team for Sen. Elizabeth Warren‘s 2020 presidential bid, filed the complaint in October 2021 with clear political overtones. Kent was concerned that the cryptocurrency ecosystem is accelerating climate change and enabling people to evade financial regulations and scam consumers.

However, District Judge Frederic Block noted in his 16-page decision that Kent’s lawsuit was based on an entirely different premise, one which could not be adjudicated on the merits, in the absence of any harm in fact. The judge pointed out that Kent was not entitled to any interest from his deposits to PoolTogether, even though he could have received interest for deposits made to Compound directly.

This highlights the inherent dilemma surrounding the regulation of cryptocurrency and blockchain technology. On one hand, there is the need to protect consumers from potential scams and illegal activities; on the other hand, overregulation could potentially stifle innovation and development in the space.

Still, the judge’s decision not to address the central question of whether PoolTogether constitutes an illegal lottery under New York law leaves room for future developments in this case. If a similar case arises in the future with a plaintiff who can demonstrate harm, the question may still be answered.

As it stands, the decision in this case should serve as a cautionary tale for those involved in the industry, as blockchain enthusiasts should take all necessary precautions to ensure proper regulations are in place. At the same time, it brings to light the ongoing struggle for a balanced approach to regulation, where both consumer protection and industry growth can coexist.

Source: Blockworks

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