Lawsuit Against DeFi Protocol Maker Dismissed by U.S Court

• U.S. District Court Judge Maxine M. Chesney dismissed the claim.
• Lead plaintiff said that Maker misrepresented the over-collateralization strategy.

According to court documents released on Wednesday, a federal judge rejected a class action complaint that claimed investors on Maker, one of the major decentralized finance protocols, lost almost $8 million due to the platform misrepresenting dangers.

Over-collateralized debt positions on the Maker platform were allegedly portrayed as more safe investments than other assets, according to a lawsuit “Black Thursday” filed in April 2020.

In order to decentralize the protocol, founder Rune Christensen disbanded the Maker Ecosystem Growth Foundation and transferred control to a decentralized autonomous organization known as MakerDAO. U.S. District Court Judge Maxine M. Chesney of the Northern California Division dismissed the claim.

The judge stated:

“Maker Growth [Foundation] is not a proper defendant because it has been dissolved, and therefore lacks capacity to be sued,” and that the “plaintiff has failed to allege facts sufficient to support each of his claims for relief.”

Misrepresented Over-collateralization Strategy

Using collateral like ether (ETH), users of the Maker lending protocol may borrow in the platform’s native stablecoin dai (DAI). In order to prevent having their loans liquidated, borrowers must keep their collateral levels at a specific minimum. Maker mandates over-collateralization on all loans to protect against the risk of falling cryptocurrency values. This means that borrowers must pledge collateral equal to or more than the loan amount.

But, lead plaintiff Peter Johnson said that Maker misrepresented the over-collateralization strategy by saying that it limits losses to 13% and returns the collateral to consumers. According to Johnson, his and many other users’ positions on the platform were liquidated when the price of ETH plummeted drastically in March 2020 due to a market-wide meltdown.

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