US regulators have taken a joint stance to temporarily ban trading bot YieldTrust.ai and its developer Stefan Ciopraga. According to the statement issued by the authorities in the three states of Alabama, Montana and Texas, the chatbot been labeled a Ponzi scheme and unregistered securities offering. YieldTrust supposedly offered 2.2% staking returns daily by relying on a complex AI system.

Investors could use a smart contract on BNB Chain to deposit funds into the system and earn rewards from multiple trading strategies. YieldTrust website advertised the chatbot as a hybrid trading method with 25% more profits than a human trader. It was also suggested that the AI was capable of executing 70 times more trades than its human counterparts. Unfortunately, the statement alleges that there was no blockchain data or other information provided to validate the trades or their profitability.

The statement was made on April 4, 2023 and the defendants were allotted 15 days to answer in writing. Elon Musk and several high-profile tech industry executives and academics signed an open letter on March 29 calling for a halt to AI development more advanced than GPT-4. They asked developers to be proactive and work with policymakerswhen formulating AI governance standards. Coinbase CEO Brian Armstrong took a contrarian stance on the matter, arguing that the regulations should not be decided by bureaucracy.

To give context to the case, an assistant professor of public health from Texas A&M University pointed out that legally defining AI is the initial step towards proper regulation. Currently the legal system is struggling to adapt to the pace of emergence technologies, which can lead to loopholes.

Montana Commissioner Troy Downing noted the ironic timing of the YieldTrust case, explaining that opportunistic scammers have started exploiting the hype surrounding AI tools. On the other hand, John Villasenor, an electrical engineer, notes that any AI algorithm outcome can be tested for legality against existing laws. This happens to be the case for YieldTrust, where the AI trading mechanics were not the lawsuit’s focal point, but rather the concerns were centered on the lack of disclosure and a potential unregistered securities offering.

Both Europe and the EU understand the importance of creating a safe environment for crypto assets, which is evident in their upcoming legislative steps. For example, the MiCA regulation addresses disclosure and admission to trading requirements while the Artificial Intelligence Act is looking to define which AI technologies pose the greatest risk to society.



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