$30M MakerDAO 'Black Thursday' lawsuit sent to arbitration

A class-action lawsuit accusing MakerDAO of misrepresenting the risks associated with its DAI stablecoin has been stayed pending arbitration proceedings.

A court has agreed with the Maker Ecosystem Growth Foundation that a class-action lawsuit over its 'Black Thursday' meltdown should enter into arbitration proceedings.

The Maker Foundation filed this motion to compel arbitration in response a lawsuit filed by MakerDAO user Peter Johnson in April after he suffered six-figure losses as a result of the protocol becoming undercollateralized in March.

In a September 25 order, Judge Maxine Chesney found that the American Arbitration Association must determine whether Johnson's claims fall within the scope of an arbitration clause included in DAI's terms of service that the investor agreed to in 2018.

"In bringing this putative class action, Plaintiff ignores his promise to pursue his claims through arbitration, failing to mention the arbitration agreement to which he affirmatively agreed."

The case has been stayed until the arbitration proceedings have been concluded, vacating the upcoming hearing scheduled for October 2.

The MakerDAO protocol allows users to mint the stablecoin DAO against Ether deposits at a margin of up to 75%, and sets a liquidation price to ensure that the collateral held by the protocol exceeds the outstanding DAI supply.

When the price of ETH fell more than 50% in less than two days during mid-March, hundreds of MakerDAO users faced total liquidations as the protocol became undercollateralized.

Johnson filed the lawsuit on April 14, 2020, claiming that DAI's terms of service had deliberately misrepresented the structure of the MakerDAO protocol to downplay the risks associated with using the protocol.

On September 22, MakerDAO's decentralized governance voted against proposals to reimburse the protocol's users who had suffered losses amid Black Thursday.