The court has reached an agreement with the Maker Ecosystem Growth Foundation that a class action lawsuit concerning the collapse of “Black Thursday” should enter the arbitration process.
After MakerDAO user Peter Johnson suffered a six-figure loss in April due to insufficient collateral in the agreement, the Maker Foundation filed this motion for arbitration.
In an order on September 25, Judge Maxine Chesney held that the American Arbitration Association must determine whether Johnson’s claim falls within the scope of the arbitration clause contained in the DAI service clause agreed to by investors in 2018.
Maker argued that Johnson’s actions violated the terms he agreed to, noting that:
“In the filing of this hypothetical class action, the plaintiff ignored his promise to recourse through arbitration, and did not mention the arbitration agreement he explicitly agreed to.”
The court rejected Johson’s rebuttal. He believed that Maker “cited an outdated and now obsolete product agreement in 2018” as an opportunistic means to circumvent the lawsuit.
The case was put on hold until the arbitration process was over, and the hearing originally scheduled for October 2 was cancelled.
The MakerDAO agreement allows users to use Ethereum (ETH) deposits to mint stablecoin DAi with a margin rate of up to 75%, and set a liquidation price to ensure that the collateral held by the agreement exceeds the outstanding supply of DAI.
In mid-March, when the price of ETH fell by more than 50% in less than two days, hundreds of MakerDAO users faced full liquidation due to insufficient collateral for the agreement.
Johnson filed a lawsuit on April 14, 2020, claiming that DAI’s terms of service deliberately misrepresented the structure of the MakerDAO agreement in order to downplay the risks associated with using the agreement. The lawsuit seeks damages of nearly US$30 million.
Johnson claimed to have lost more than $200,000 of Ethereum during the plunge in mid-March. At that time, his 1713.7 Ethereum collateral was liquidated for $121. He stated that according to Maker’s terms, the liquidation would only cause a loss of 13%. :
“The Maker Foundation and other third-party user interfaces inform users that because their CDP is seriously over-collateralized, the liquidation will only impose a 13% liquidation penalty on the remaining collateral, and then return the remaining collateral to the user.”
On September 22, MakerDAO’s decentralized governance voted against the proposal to compensate users of the agreement who suffered losses during Black Thursday.
