Home / News / Crypto / News / DAO Members of Largest DeFi Platform, Lido, To Bear Liability, California Court Rules
News
3 min read

DAO Members of Largest DeFi Platform, Lido, To Bear Liability, California Court Rules

Published
Eddie Mitchell
Published
Key Takeaways
  • A court has ruled that members of a decentralized organization could also be liable for lawsuits against the DAO itself.
  • Lido DAO has over $30 billion in assets under management.
  • Decentralized finance (DeFi) and organizations are under increasing regulatory scrutiny.

A California court has ruled that a decentralized autonomous organization (DAO), Lido DAO, and its governing members are liable to be sued under Californian laws, raising questions about how profit-driven DAOs are treated legally.

The complaint also argues that LDO violated securities laws by failing to register as a security.

Lido DAO Lawsuit

A ruling  from the U.S. District Court in the Northern District of California has rejected Lido DAO’s claim that it is not a legal entity. The courts state that decentralized governance structures do not exempt them from regulatory compliance.

Instead, the court has decided that because token holders can govern and earn, Lido DAO operates as a general partnership under California laws, making it and its members liable to be sued.

The lawsuit, initially brought forward in Dec. 2023 by former LDO token holder Andrew Samuels, was initiated after he suffered significant financial losses from the token’s waning value.

In addition, Samuels’s legal team has alleged that there is a strong centralization within Lido DAO. Specifically, they claim that over half (64%) of LDO tokens are still held by founders and early investors.

Furthermore, Samuels’s complaint adds that Lido DAO has purposefully structured itself to dodge regulatory and legal scrutiny so that it can sell unregistered securities to major institutional players.

Liabilities

Most pertinent to the ruling is Samuels’s allegations of token supply concentration, which grants disproportionate control to the founding team. In that same vein, the court ruled that investors also play active roles in governance and business operations, which could also hold them liable alongside the DAO itself.

Miles Jennings, a16z crypto’s General Counsel and Head of Decentralization, was critical of the decision, writing:

“Today, a California judge dealt a huge blow to decentralized governance. Under the ruling, any DAO participation (even posting in a forum) could be sufficient to hold DAO members liable for the actions of other members under general partnership laws.”

Samuels is seeking damages for losses, a trial by jury, and compensation for legal fees.

Was this Article helpful? Yes No

Eddie Mitchell

Eddie has been writing news and content primarily for crypto news and industry players over the past seven years. With an eye for the bigger picture, Eddie prefers to investigate the broader implications of a story, as well as explore the weird and wonderful world of crypto. He believes blockchain has already changed the world, but observes the space overall with a skeptical and adoring eye.
See more