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Lido DAO argued that it is not a legal entity and, therefore, immune from lawsuits. However, the court dismissed this claim, ruling that the DAO operates as a general partnership under California law, making it subject to legal action.
Andrew Samuels, a former Lido DAO token holder, filed the lawsuit in December after suffering substantial financial losses tied to the declining value of the LDO token. Samuels claimed that Lido DAO violated federal securities laws by failing to register LDO as a security. The court supported this position, emphasizing that decentralized governance does not exempt DAOs from regulatory compliance.
The lawsuit highlighted centralized control within Lido DAO, pointing out that 64% of LDO tokens are held by founders and early investors. Samuels argued this concentration of power gave these entities disproportionate influence over governance decisions. The complaint also alleged that Lido DAO deliberately structured itself to evade legal scrutiny while enabling institutional investors like Paradigm, Andreessen Horowitz’s a16z, and Dragonfly Digital Management to profit from unregistered securities sales.
The court found that institutional investors likely played active roles in Lido DAO’s governance and operations, potentially exposing them to legal liability. This ruling could have broader implications for how investors in DAOs are held accountable for their involvement in governance.
The lawsuit also accused Lido DAO of promoting LDO tokens through social media campaigns and facilitating listings on centralized exchanges. These promotional efforts were deemed sufficient to connect Lido DAO to Samuels’ financial losses, even though he purchased the tokens on secondary markets.
Lido DAO, one of the largest liquid staking protocols managing over $30 billion in assets (per DefiLlama), faces significant challenges following this ruling. The court’s decision sets a precedent for holding DAOs accountable under existing legal frameworks, raising questions about the future of decentralized governance.
Samuels is seeking damages for his financial losses, a jury trial, and legal fee coverage. As the case progresses, it could have far-reaching implications for the decentralized finance ecosystem and its participants, further underscoring the need for regulatory compliance in the sector.
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Brenda has been a news writer since 2019 with a deep background in crypto. Brenda commits to producing excellent, well-optimized content to ensure consumer satisfaction.
