dYdX to set up legal entity in Cayman Islands, scrap existing treasury

Decentralized exchange dYdX DYDX -5.88% plans to move part of its operations to the Cayman Islands as U.S. regulators turn their attention toward decentralized finance (DeFi) protocols.   

The restructuring plan, approved on Sunday with more than 90% of the vote in a community referendum, will transfer the dYdX operating trust (DOT) into a Cayman Islands foundation company, the dYdX Foundation said in an X post. The move could safeguard dYdX contributors against legal threats as securities regulators in the U.S. show signs of cracking down on DeFi protocols. 

Although dYdX does not operate in the U.S., regulators there can, and have, pursued crypto projects based outside of their jurisdiction. A dYdX representative was not immediately available to respond to The Block’s request for comment. 

The Cayman Islands is hardly a surprising destination for the reinvention of DOT, a pooled fund launched last year with nearly $400,000 in tokens earmarked for dYdX's governance and operations initiatives. That’s because the British territory boasts a lax regulatory framework for digital assets, making it an attractive destination for crypto companies that want to offshore their operations to avoid tangling with more hostile regulators like those in the U.S. 

RELATED INDICES

As part of its crypto-friendly laws, the Cayman Islands allows international businesses to set up foundation companies within its borders. These limited liability corporate vehicles maintain a “separate legal personality,” meaning the personal finances of those who manage them are protected in the event that the company is sued, according to a blog post from offshore law firm Carey Olsen.

In recent years, several DeFi projects have received inquiries or even legal threats, from regulators. In 2023, the U.S. Securities and Exchange Commission (SEC) subpoenaed SushiSwap and its leading contributor, Jared Grey , raising concerns the protocol could become the target of an enforcement action brought by the agency. Meanwhile, DeFi platform ShapeShift paid $275,000 last month to settle a lawsuit brought against it by securities regulators in the U.S., an SEC notice shows.