Lossless lottery PoolTogether accused of violating New York lottery laws, founder turns to NFT fundraising for legal fees

The no-loss lottery PoolTogether has been accused of violating New York's lottery laws, casting doubt on its legality. The founder of PoolTogether expressed helplessness and launched NFTs to raise funds for legal fees. Legal experts believe that this case may be the first lawsuit directly targeting the "protocol itself."

Get to Know PoolTogether, the Lossless Lottery

The lossless lottery PoolTogether can be considered one of the earliest DeFi applications and has gained popularity over time. Its basic concept is to allow players to invest funds to purchase tickets, pool the funds into interest-bearing DeFi products like Compound, and distribute all interest earned over a period of time to the winner through a lottery. Since tickets can be redeemed at any time and continuously participate in the lottery, it is known as a "lossless lottery."

Such products received less attention as DeFi began to offer high-yield products such as "yield farming." PoolTogether has now launched its fourth version, spanning across the Ethereum, Polygon, and Avalanche blockchains.

PoolTogether Accused of Violating New York Laws

Software engineer Joseph Kent, who filed the lawsuit, claims that PoolTogether is essentially a form of lottery prohibited by New York laws, questioning the legality of its operations.

Last October, Joseph Kent invested $10 worth of cryptocurrency in PoolTogether, stating that the protocol does not comply with any U.S. laws regarding savings accounts related to lotteries. He accuses PoolTogether of being an "illegal lottery" under New York state laws and has filed a lawsuit on behalf of himself and other lottery ticket holders.

Joseph Kent's lawyer even stated, "When people use blockchain to break the law, it's not called technological innovation, it's a conspiracy."

PoolTogether's Rebuttal: No Ownership of Protocol, Lawsuit Driven by Political Agenda

PoolTogether's lawyer Kevin Broughel argues that PoolTogether is simply a company operating a website providing information for users interested in accessing the "PoolTogether protocol." PoolTogether does not own or control the protocol, as its operations are executed by code and can only be altered through governance by majority vote using the POOL token.

PoolTogether co-founder Leighton Cusack describes the lawsuit as driven by political motives. The plaintiff Joseph Kent is a former staffer of Senator Elizabeth Warren, known for her strong opposition to cryptocurrencies.

The Wall Street Journal: How U.S. Regulators Adapt to "Protocols"

The Wall Street Journal comments that the PoolTogether lawsuit has sparked discussions on how U.S. regulators should handle "protocols." The concept of PoolTogether is inspired by a UK financial product called "Premium Bonds," which distributes prizes to investors through a monthly draw instead of interest payments, blending the concepts of "financial products" and "gambling." In 2014, the U.S. passed laws allowing states to authorize banks to offer similar prize-linked products.

Due to the similarities in functionality, PoolTogether's protocol has raised legal disputes. However, U.S. lawyer Carlton Greene states, "How courts and regulators should address these unique features of DeFi remains an unresolved issue."

PoolTogether Founder Launches NFT Fundraiser to Support Lawsuit

The lawsuit is still in its early stages, and PoolTogether co-founder Leighton Cusack has initiated the "Pooly" NFT fundraiser to support the lawsuit. Many prominent figures in the crypto community have already shown support, raising approximately 171 ETH, around $297,888 at the time of writing, but still falling short of the 769 ETH goal, roughly $1.34 million.

Despite issuing governance token POOL in February 2021 and the token's lackluster performance, PoolTogether secured $2 million in funding in 2020 and an additional $6 million in May 2021. The need for fundraising and community support in light of the lawsuit has sparked discussions.