Lido DAO Members Could Face Legal Consequences After Court Ruling

A U.S. federal judge ruled on November 18 that members of decentralized autonomous organizations (DAOs) could be held liable for the actions of other members under state partnership laws.

The case stemmed from a lawsuit filed by Andrew Samuels, an investor who purchased tokens issued by Lido DAO and sought to recover losses, arguing that the tokens were unregistered securities.

The judge, Vince Chhabria, determined that Lido DAO qualifies as a general partnership under California law, meaning that its governing bodies, including institutional investors like Paradigm Operations, Andreessen Horowitz, and Dragonfly Digital Management, could be held accountable for its actions.

The decision effectively makes DAO members vulnerable to liability for actions taken by other members, a significant shift in how decentralized entities are viewed under U.S. law. While Robot Ventures was dismissed from the case due to insufficient evidence of its partnership role, the ruling is seen as a major challenge to the concept of decentralized governance.

Legal experts, including Miles Jennings, general counsel at a16z Crypto, described the decision as a “huge blow” to DAOs, suggesting that even minimal involvement in a DAO’s governance, such as posting in forums, could now expose members to legal consequences.

This development marks a significant moment in the ongoing debate over how DAOs should be regulated and the responsibilities of their participants.