Maker firm settles for $1.16M with users liquidated in Covid crash

A pair of firms operating under the Maker ecosystem has moved to settle for $1.16 million with investors who sought compensation for financial losses suffered after the “Black Thursday” COVID crash in March 2020.

Plaintiff Peter Johnson lodged the class action lawsuit one month after the collapse. The case was filed for numerous investors who claimed the Maker Foundation and related entities intentionally misrepresented the risks of collateralized debt positions (CDPs) on the platform, leading to losses totaling $8.3 million. 

Maker’s CDPs (or vaults) allow users to take out overcollateralized DAI loans using crypto such as ether (ETH), but those assets can be liquidated if the value of their collateral slips below a certain point.

Johnson said he experienced such losses when ETH tanked up to 45% around Mar. 12, 2020 — a day dubbed “Black Thursday” — dropping from $200 to $110.

MakerDAO’s native token MKR sank about 60% at the same time, while the total crypto market lost nearly one-third of its value.

Meanwhile, MakerDAO’s dollar-pegged stablecoin DAI jumped up to $1.06 on some exchanges during the Black Thursday chaos.

A court filing released Thursday showed that both sides reached a settlement agreement, despite the Maker Foundation denying any wrongdoing or legal violations.

Blockworks has reached out to MakerDAO for comment.

Maker liquidation case was first dismissed

Originally, the defendants in the case were the Maker Ecosystem Growth Foundation, the Dai Foundation and Maker Ecosystem Growth Holdings.

In February this year, Judge Maxine Chesney of the US District Court in California granted the Maker firms’ motion to toss out the lawsuit, but gave the plaintiff about a month to amend the complaint. 

As a result, a third amended class action was filed — this time against only Maker Ecosystem Growth Holdings, now known as Metronym. 

But on Apr. 20, the parties and their lawyers got together for a mediation session and came to an agreement the same day, per court documents.

Following this, both parties signed a term sheet to put their agreement in writing. The plaintiff agreed to resolve the matter in exchange for a million-dollar payment. Exact details of the settlement are still subject to court approval.

The Maker firm agreed to enter the deal “solely to eliminate the uncertainty, burden and expense of further litigation, and to put the released claims to rest, finally and forever,” Johnson’s counsel said.

David Canellis contributed reporting.

Updated Jun. 23, 2023 at 6:49am: Adjusted headline to reflect just one Maker firm was involved in the settlement agreement.

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