Permanent Product Protocol BarnBridge DAO filed with SEC for $1.7M

The governing body of decentralized finance (DeFi) protocol Barnbridge has reached an agreement with the United States Securities and Exchange Commission (SEC) and agreed to stop “unregistered supply and sale of structured financial crypto products” on December 22 from the financial regulator. The agency issued a cease-and-desist order as part of the enforcement action.

According to the current documents, Barnbridge allows users to “exchange variable APIs from money markets for fixed APIs to earn fixed returns on their deposits.” The protocol's governance token bond was originally distributed to reward liquidity providers for Uniswap pools, according to Burnbridge's copy of the documents. BOND token holders form the BarnBridge Decentralized Autonomous Organization (BarnBridge DAO), which is the respondent in the SEC enforcement action.

In a cease-and-desist order, the SEC disclosed that BarnBridge DAO and its founders Tyler Ward and Troy Murray introduced “SMART Yield Bonds,” a structured investment product that pays investors a fixed amount of cash from the stock. Investment pool. The pools swapped investors' assets for leveraged assets from “third-party lending platforms” to achieve higher rates of return.

Then the income is divided between the “senior” and “junior” investors. Senior investors are guaranteed a fixed rate of return, the SEC said, while junior investors are given a variable rate. If the rate of return is not sufficient to pay the full awards to the senior investors, the assets of the junior tranche are used to compensate the senior investors.

On the other hand, if the rate of return is higher than what the senior investors need to pay, the additional income is given to the junior tranche investors. In this way, the protocol guarantees a certain rate for senior investors and allows junior investors with high risk to earn extra income during periods of high income.

Related: What is Profit Farming in Decentralized Finance (DeFi)?

According to the order, BarnBridge DAO charged SMART Yield Bond investors a fee of 5%, which went to a smart contract called “BarnBridge DAO Treasury”. Throughout the protocol, the DAO voted to use these treasury funds to pay for various business expenses, including blockchain transaction fees, website hosting fees, programmer contracts, and Ward and Murray's salaries.

SMART product investment pools are “unregistered investment companies” that must be registered with the SEC as defined by the U.S. Investment Company Act, the agency said. The SEC also stated that BarnBridge DAO is the “operator” of these pools and is required to perform this registration on behalf of the pools.

According to the announcement, the SEC ordered Barnbridge Dao to pay the US Treasury a $1.4 million fraud using cash it had stored in its treasury. He also ordered Ward and Murray to each pay $125,000 in civil penalties. The DAO is ordered to cease and desist from any further violations of US securities laws.

Barnbridge appears to have been closed since July 6. On that day, DAO-appointed attorney Douglas Park announced on Deccord that “existing liquidation pools must be closed, and no additional liquidation pools should be started” while the DAO is under investigation. SEC.

In October, Ward officially announced that the SEC had issued an order against The DAO. But he could not show proof of the order due to the “non-public” nature of the proceedings. In response, the DAO granted permission for Ward, Murray and Park to comply with the order.