Mango Markets, the Solana-based decentralized exchange, is closing its doors after reaching a settlement with the U.S. Securities and Exchange Commission (SEC). This unexpected turn of events prompts us to reconsider the future of decentralized finance (DeFi) platforms at a time of heightened regulatory attention. Let’s break down what led to Mango's closure, the ramifications of its SEC settlement, and what it all means for the wider crypto landscape.
The End of the Line for Mango Markets
On January 11, Mango Markets announced on its X account that it is shutting down and users should “close their positions.” This decision follows governance proposals that change interest rates and collateral requirements, effectively halting borrowing and lending on its platform. These proposals, with unanimous support, are set to take effect on January 13.
This closure directly correlates with the SEC settlement, creating concerns about the future of decentralized systems and crypto asset managers.
SEC Settlement: A Wake-Up Call for Crypto Managers
Back in September 2024, the SEC settled charges against Mango DAO and the Blockworks Foundation for selling unregistered securities. The SEC accused Mango of raising over $70 million by selling MNGO governance tokens in August 2021, a direct violation of the Securities Act of 1933. Furthermore, the SEC alleged that Mango Labs acted as an unregistered broker, breaching the Securities Exchange Act of 1934.
The settlement terms were quite harsh. Mango DAO had to pay $700,000 in civil penalties and destroy MNGO tokens while requesting exchanges to remove them from trading. Jorge Tenreiro, chief of the SEC’s Crypto Assets and Cyber Unit, stated, “Since the inception of our crypto enforcement program, our view has been that the label ‘DAO’ does not change the reality of who is behind a project.”
The Mango DAO voted on August 19, 2024, to settle with the SEC for $223,228, alongside destroying MNGO tokens. They later settled with the Commodity Futures Trading Commission (CFTC) for $500,000.
Historical Context: The Dark Side of the Crypto Banking Platform
Mango Markets started its journey in August 2021, founded by Maximilian Schneider, Britt Cyr, and John Kramer. The goal was to create a decentralized exchange and lending platform on Solana, promising quick and low-cost trading through its governance token, MNGO.
However, the foundation of Mango Markets was shaken in October 2022 when a trader, Avraham “Avi” Eisenberg, drained over $100 million from the platform. This prompted a community governance vote that saw Eisenberg return $67 million, but he kept $40 million. Eisenberg was arrested in December 2022 for fraud and market manipulation.
His sentencing, originally set for December 12, 2024, has been pushed back various times due to the complexity of the case, with the latest date being April 10, 2025. Eisenberg faces up to 20 years in prison.
Regulatory Challenges: What This Means for DAOs and DEXs
The abrupt closure of Mango Markets serves as a stark reminder of the regulatory hurdles that DAOs and DEXs face. To avoid SEC pushback while still operating as decentralized entities, DAOs must navigate several challenges:
SEC Report and the What DAO Test
The SEC's 2017 Report of Investigation on The DAO ruled that DAO tokens qualified as "investment contracts", making them securities subject to the SEC's regulations based on the What DAO test.
Legal Wrappers and Compliance
DAOs can reduce regulatory risks by creating traditional legal structures or "legal wrappers” such as LLCs or Member-based Associations. These structures would allow DAOs to engage with other entities while ensuring compliance with regulations.
Governance Mechanisms
Good governance is key for DAOs to overcome regulatory challenges. By establishing transparent governance structures, voting mechanisms, and decision-making processes, DAOs can align with legal principles while maintaining member engagement.
Alternative Dispute Resolution
The decentralized nature of DAOs complicates traditional dispute resolution. Mechanisms like Blockchain-based Dispute Resolution (BDR) may provide solutions in line with their ethos.
State-Specific Legislation
Certain states like Utah have created laws aimed at DAOs. The Utah Decentralized Autonomous Organizations Act allows for Limited Liability Decentralized Autonomous Organizations (LLD), which provides clarity on liability and operational needs.
Ongoing Engagement with Regulators
DAOs need to stay in touch with regulatory bodies and adjust to changing regulations. The SEC has encouraged market participants to engage with them for compliance. Ongoing communication will help DAOs maneuver through the convoluted legal landscape.
Final Thoughts: The Shifting Terrain of DeFi Platforms
The closure of Mango Markets, following its SEC settlement, highlights the increasing pressure on decentralized finance platforms. As the regulatory landscape continues to evolve, it's full of hurdles but also opportunities for DAOs and DEXs to adapt. By bolstering governance structures, considering alternative dispute resolution channels, and maintaining an open dialogue with regulators, decentralized finance can continue to exist, albeit under the watchful eye of authorities.
In this maturing crypto market, the lessons from Mango's experience will be invaluable for other platforms hoping to take a legal path toward innovation and growth in decentralized finance.
