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Bancor Protocol is facing lawsuit for allegedly misleading investors

There is an ongoing class action against the founders of the Bancor Protocol. Prosecutors accuse the exchange of misleading investors and causing large financial losses.

It was a class action lawsuit foot against the founders of Bancor Protocol, an automated crypto-asset exchange. The plaintiffs claim that they misled investors and caused significant financial losses. A group of plaintiffs, along with others in a similar situation, has filed a class action lawsuit against the founders of the Bancor Protocol, as well as the BProtocol Foundation and Bancor DAO.

Bancor Protocol Systems

Prosecutors contend that the defendants seduced them with promises of risk-free investments. They allegedly did this to compensate for an undisclosed deficit in the online crypto-asset exchange. Not only were these promises false, according to the lawsuit, but those who made them knew full well that they were bogus.

Founded by the BProtocol Foundation in 2017, Bancor Protocol founders have introduced an automated way to trade crypto assets. The protocol acts as an “Automated Market Maker” (AMM), pooling crypto assets for investors to create a functional exchange.

In exchange, the investors are offered a share of the fees collected from the traders on the platform.

Allegations of misleading advertisements and financial losses

While the Bancor protocol is governed by a decentralized autonomous organization (DAO) called Bancor DAO, the lawsuit alleges that the defendants retained significant control over the platform’s operations. This not only extended to capital, staff and token, but also the manipulation and control of Bancor DAO, giving the defendants near complete control.

To attract Liquidity Providers (LPs) and stay competitive, Bancor Protocol has sought ample liquidity across diverse crypto assets.

The defendants offered various versions of Bancor, with version 2.1 prominently featuring “non-permanent protection against loss” as the enticing feature of the LPs. This protection is intended to protect liquidity providers from the losses they incur when depositing assets on the exchange. As a result, Bancor Protocol has managed to attract more than $2.3 billion worth of crypto assets.

With the “Irreversible Loss Protection” feature, investors believe their money is safe.

However, the lawsuit alleges that implementing version 2.1 exacerbated vulnerabilities in the protocol. The defendants were allegedly aware of these shortcomings and related risks but hid them from the LPs while trying to circumvent the problem through undisclosed liquidity increases and analytics.

However, these efforts failed to cover the non-permanent loss protection guarantee, resulting in huge financial losses to potential growers.

Bancor DAO: Not that decentralized?

In May 2022, Bancor Protocol launched Version 3 with an enhanced investment program known as the LP Program. The defendants marketed the software to LPs, offering “100% protection” against non-permanent loss and claiming fixed payment coverage for prior releases.

However, just 19 days after the launch of the program, large withdrawal requests led to repayment obligations that the defendants had allegedly failed to meet. This caused significant financial harm to the investors, according to the complaint.

The plaintiffs argue that the LP constitutes a binding investment contract and security under US law. They maintain that the Defendants could have complied with the relevant registration and disclosure requirements.

Thus, they and other class members could have avoided losses of up to nearly 50% of their investment. As a result, the plaintiffs sought damages, compensatory and other forms of relief.

Disclaimer

Adhering to the Trust Project’s guidelines, BeInCrypto is committed to providing unbiased and transparent reporting. This news article aims to provide accurate and timely information. However, readers are advised to independently check the facts and consult with a professional before making any decisions based on this content.

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