US District Court dismisses Lido DAO’s claim of not being legal entity

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As a researcher who has closely followed the evolving landscape of decentralized finance (DeFi) and its legal implications, I must say this ruling against Lido DAO is a significant milestone. My experience in observing numerous cases where traditional financial institutions have been held accountable for their actions provides a unique perspective on this situation.

In a significant court decision, the U.S. District Court for the Northern District of California has found against Lido DAO in a case that questions its legal standing.

In simpler terms, the Decentralized Autonomous Organization (DAO) asserted that it doesn’t have a legal status and is thus exempt from lawsuits. However, the court disagreed with this perspective, explaining that Lido DAO functions as a partnership under California law. This means it can be held responsible for any legal matters.

Last December, a previous holder of the Lido DAO (LDO) token, named Andrew Samuels, filed a lawsuit as he suffered substantial financial losses following the decrease in the token’s value.

He contended that Lido DAO and its governance token, LDO, violated federal securities laws by failing to register the token as a security. 

In their ruling, the court affirmed these claims, stressing that decentralized autonomous organizations (DAOs) are not exempt from adhering to regulatory guidelines. This judgment aligns with current regulatory efforts aimed at overseeing entities within the decentralized financial sector.

Samuel’s legal representatives have pinpointed the concentrated power within the Lido Decentralized Autonomous Organization (DAO), noting that approximately two-thirds of LDO tokens are in the hands of the founders and early investors. They contend that this ownership structure grants them an undue level of control over decision-making processes.

The accusation also stated that Lido DAO intentionally organized its structure in a way that avoided legal examination, thereby allowing firms such as Paradigm, Andreessen Horowitz’s a16z, and Dragonfly Digital Asset Management to earn profits through the sale of unregistered securities without proper oversight.

Additionally, the court believed it was probable that these investors held significant influence over the decision-making and daily activities of the DAO, which could make them liable for any legal issues along with Lido DAO.

Additionally, the legal document highlights allegations that Lido DAO engaged in promotional efforts, such as urging LDO token acquisitions via social networks and arranging for their inclusion in well-known cryptocurrency trading platforms.

Samuel contended that these actions amounted to solicitation, thus linking the Lido DAO to his monetary losses. Although he acquired his tokens through secondary exchanges, the court established that the promotional activities were substantial enough to associate the Lido DAO with these transactions.

Due to a recent court ruling, Lido DAO – one of the leading liquid staking platforms with over $30 billion in assets (as per DefiLlama data) – now faces significant hurdles. This decision could pave the way for DAOs like Lido to be held liable under current legal structures, marking a potential shift in their regulation.

Samuel is pursuing compensation for his monetary losses, a court trial, and costs related to his legal representation. Importantly, this case is ongoing, and its potential impact on the Decentralized Finance (DeFi) community remains significant.

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2024-11-19 12:20