PoolTogether Launches NFT Sale to Fund Ongoing Litigation
PoolTogether hopes to raise money for ongoing legal expenses through the sale of 'Pooly' NFTs.
By: Owen Fernau •DeFi News
The struggle for regulatory clarity in DeFi continues, and the upstart open finance space is leaning on its native tools to defend itself.
PoolTogether, one of the earliest DeFi projects launched in 2019, is a defendant in a class action lawsuit against the company as well its investors. It has turned to NFTs to raise funds to cover legal expenses. The mint went live at 7 a.m. EST and features three tiers of NFTs, priced from 0.1 ETH to 75 ETH.
Pooly NFTs. Source: PoolTogether
According to the website, proceeds will go towards Pool Together Inc.’s legal expenses, with funds not used directly for legal expenses being retained by the company for business purposes.
The case levelled against PoolTogether Inc. may have far-reaching consequences, as it centers on a key distinction between company and protocol. “We want to set a precedent in the sense that if we win this case, we win for all DeFi protocols,” Richard Liriano, a longtime PoolTogether community member, told The Defiant.
“We want to set a precedent in the sense that if we win this case, we win for all DeFi protocols.”
At the highest level, the lawsuit contends that PoolTogether Inc. is running an illegal lottery in the state of New York. PoolTogether has countered that its corporate entity merely runs the interface which provides access to the PoolTogether protocol, which is owned by no one and runs primarily on Ethereum. This dynamic is common across DeFi as companies are set up to support their protocols which could, in theory, continue to run on a blockchain without any support.
“Crypto and DeFi as a whole needs to stand and squash this kind of nonsense before it gets out of control,” another PoolTogether community member, who goes by Oops, told The Defiant. “PoolTogether is a veteran DeFi protocol that most people rely on to onboard their friends and family in a risk-free environment,” he continued.
Joseph Kent, a software engineer who previously worked for U.S. Senator Elizabeth Warren, initiated the lawsuit against PoolTogether Inc. “PoolTogether is violating New York’s prohibition on operating an illegal lottery,” asserts Kent’s second amended complaint.
PoolTogether, which bills itself as a “protocol for prize-linked savings,” on its website, has countered with a distinction which is key to all of DeFi — the separation of protocol from company.
“PoolTogether Inc. operates a website that provides an interface for users to connect their cryptocurrency wallet to an autonomous, decentralized savings protocol that resides principally on the Ethereum cryptocurrency network,” reads the company’s response to Kent’s lawsuit.
As of May 25, PoolTogether has no language on its website referring to the protocol as a “lottery,” though the element of chance is integral to its function.
In a nutshell, PoolTogether allows people to deposit their crypto assets, which function as tickets, redeemable for a prize. The protocol earns a yield on those assets by depositing them into lending protocols like Compound. If a winner’s ticket is chosen, they get the prize.
The key is, nobody really loses money — users can withdraw their crypto at any time. They’re not really buying tickets, just depositing for the chance to win. The only cost is the transaction fees.
Liriano told The Defiant that upon hearing about the lawsuit he initially suggested that PoolTogether Inc. could shut down given that the case has pulled so much of the company’s resources towards legal battles. He’s since been convinced that fighting the case is the right call considering the precedent it sets and the implications for DeFi as a whole.
Gateway to DeFi
According to Liriano, PoolTogether Inc. is not a lucrative business. Indeed, PoolTogether is generally considered a gateway to understanding DeFi, rather than a key piece of infrastructure. The protocol’s $37.6M in total value locked (TVL) pales in comparison to heavyweights like MakerDAO, which hold billions in assets.
With the ongoing sale of NFTs, PoolTogether Inc. may be taking a stand for DeFi, not just itself.
As the recipient of a laptop and other support from the PoolTogether community during a difficult time, Oops sees buying the Pooly NFTs as a way to pay back a project which has served as a launchpad for many in the space.
Plus, Oops added, NFTs allow a way for people to chronicle their support. PoolTogether (and others) can see who bought the NFTs, and rewards may follow, similar to how Gitcoin donors have received retroactive airdrops.
As of 1 p.m. EST, Pooly NFTs have raised 82.7 ETH of the initiative’s stated goal of 769 ETH, which would give PoolTogether Inc. roughly $1.4M for legal fees at current prices. The mint will run until June 26.