Miles Jennings, general counsel and head of decentralization at a16z Crypto, has warned of significant implications for decentralized governance following a recent U.S. court decision in a case involving the decentralized autonomous organizations (DAO) governing Ethereum’s largest staking platform, Lido.
On November 18, Judge Vince Chhabria of the U.S. District Court for the Northern District of California ruled that participants in DAOs could be held liable for the actions of other members under California partnership laws.
Judge Chhabria’s ruling was the resolution to a lawsuit filed by investor Andrew Samuels, who alleged financial losses after purchasing tokens issued by Lido DAO, which he claimed were unregistered securities. Samuels argued that Lido DAO failed to register the tokens with the U.S. Securities and Exchange Commission (SEC).
The court found sufficient grounds to hold Lido DAO and its identifiable partners liable. The ruling classified the governing body of Lido DAO as a general partnership, exposing its members to potential legal accountability.
Samuels specifically named Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures as partners in Lido DAO. While Robot Ventures successfully secured dismissal due to insufficient evidence, the court denied motions from the other three entities.
In a recent X post, Jennings expressed concern that minimal involvement in DAOs, such as forum posts, could now lead to significant legal consequences for participants.
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.
It’s time to DUNA. pic.twitter.com/aKNBY7pfc9
— miles jennings (@milesjennings) November 19, 2024
The ruling comes as California authorities intensify their scrutiny of cryptocurrency entities. In a related case, Judge William Orrick rejected Kraken’s request to appeal a ruling that allowed the SEC’s lawsuit against the exchange to proceed. Orrick maintained that the SEC’s claims regarding the sale of unregistered securities warranted further litigation, denying Kraken’s motion to avoid delays in case resolution.
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