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Lido DAO members can be held liable under partnership laws, according to a new federal court ruling in California.
What’s the scoop?
- Yesterday, a California federal court ruled that Lido DAO, the governing body behind the popular liquid staking protocol Lido, can be treated as a general partnership under state law.
- The court dismissed Lido’s argument that it is a non-legal entity, holding its members liable despite the DAO's decentralized nature. The court cited token holder involvement in decision-making and earning staking rewards as evidence of co-ownership of a profit-driven business.
- Venture firms including
Paradigm Operations, Andreessen Horowitz, and Dragonfly Digital Management were implicated as general partners, with the case stemming from a class-action lawsuit filed by Andrew Samuels, who claimed Lido’s native LDO tokens were sold to him as unregistered securities.
Bankless take:
The California court ruling that Lido DAO members could be held liable under partnership laws raises significant concerns for decentralized organizations. The court has established a precedent that decentralization alone doesn’t shield participants from liability.
Furthermore, the ruling challenges the assumption that DAOs operate outside traditional legal frameworks and could set a precedent for similar cases, reshaping the legal landscape here. If this ruling stands, DAO members face increased legal exposure, which could impact their decision-making and cause a broader shift toward more regulated approaches like the Wyoming DUNA model.
Today, a California judge dealt a huge blow to decentralized governance.
— miles jennings (@milesjennings) November 19, 2024
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.
It's time to DUNA. pic.twitter.com/aKNBY7pfc9
