US court rules DAOs can face legal liability under partnership law
Lido DAO ruling marks a new chapter in DAO accountability, shaking the foundation of decentralized governance.
The US District Court for the Northern District of California has ruled that decentralized autonomous organizations (DAOs) can face legal liability under general partnership laws.
Judge Vince Chhabria’s decision, delivered on Nov. 18, establishes that DAOs and their identifiable members can be held accountable for legal actions.
This judgment emerged from a lawsuit involving Lido DAO, a decentralized autonomous organization behind the Ethereum liquid staking protocol.
The organization attempted to avoid liability by claiming it was not a legal entity. However, the court determined that Lido DAO operates as a general partnership. The Judge wrote:
Under California law, a partnership is formed when two or more parties work together for profit, regardless of intent to create a formal partnership.
Lido DAO lawsuit
Andrew Samuels, a former LDO token holder, initiated the lawsuit after incurring losses from a decline in the token’s value.
Samuels accused Lido DAO of offering unregistered securities and violating federal securities laws. He argued that the DAO and its identifiable partners should bear responsibility for his financial losses.
Judge Chhabria supported Samuels’ claims, emphasizing that Lido DAO’s decentralized structure does not shield it from legal action.
The lawsuit named institutional investors such as Paradigm, Andreessen Horowitz (a16z), Dragonfly Digital Management, and Robot Ventures as liable partners. While Robot Ventures’ dismissal motion was accepted due to insufficient evidence, the others remain implicated.
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