Nowadays tussles between regulators, courts, and enforcement agencies are quite common in the crypto market. In the past few quarters, agencies filed cases against dozens of firms offering digital asset services. 

Most recently, a Californian Federal Court has ruled that the decentralized body behind the Lido Staking protocol, Lido DAO, operates as a general partnership, making its participants liable under regional laws. 

The decision came following the argument that the governance structure and token holders’ involvement in Lido qualify it as a profit-driven partnership. The Lido DAO terms itself as a non-legal entity. 

The verdict came over the class action lawsuit, which pointed out that Lido sold unregistered securities.

Additionally noted that Andreessen & Paradigm were implicated for active involvement and the Robot Ventures was dismissed due to lack of sufficient evidence.

The court’s decision has been highly appreciated and demonstrates how the courts and law have a keen interest in such financial activities. Yet judgment is widely discussed in the decentralized community and moguls term this decision as a severe setback for decentralized governance. 

In the vast market, experts claim that these types of decisions are expected to hinder the growth of DAO and other related sub-products. The mandate of registering and other legal paperwork has been troubling DAO’s user base, which has remained steady in the past few quarters.

DAO to Flourish Further! 

Data available states that the growth of DAO this year remains 30 percent greater than in the previous year. The growth is not just quantitative, but an overall qualitative one has been observed.

It has been argued that the surge in usage of DAO has been solely supported by the surge adoption of decentralized models and crypto worldwide.

Almost every developing, developed, and under-developed nation has seen a staggering growth in the number of crypto holders, Bitcoin remains the most adopted followed by Tether and Ethereum.

A research report published in April this year notes that DAO succeeded in surpassing major milestones of $4 billion, collectively managing more than $4 billion, marking a surge of 50 percent compared to the previous.

As per the membership engagement metric, participation in DAO activities is 2x, with active members surpassing 500k globally. The recorded nourishment underscores a dedication to participatory governance and decentralized decision-making.

In 2024, around 60 percent of newly debuted DAOs are focusing on areas such as sustainable technology and DeFi. This shift highlights a deliberate focus on global priorities, including environmental sustainability and promoting financial inclusion.

If the pace of growth continues in the coming times DAOs are expected to soon reach a new milestone surpassing the previous milestone. 

DAO governance needs a re-think, and shares should look like a multi-classed structure similar to Meta and other Silicon Valley giants.

Such a change would help prevent governance attacks, like what recently happened against Compound.

It's all but impossible to carry out a governance attack against Meta.

Shareholder activism is a non-starter in Mark Zuckerberg's empire, as the company's dual-class share structure – where insider-held Class-B shares have more voting weight than Class-A shares available to the public – means that Zuckerberg maintains approximately 58% voting control of the company.

But in the world of decentralized autonomous organizations (DAOs), which are in many ways analogous to corporations, it's one token for one vote.

That is how a whale – a large token holder – who goes by the handle Humpy and his "GoldenBoys", an affiliate group directed by Humpy or perhaps Humpy themselves, ran what some called a "governance attack" against the lending protocol Compound.

They used their collective voting might to allocate $24 million worth of COMP tokens into a yield-bearing protocol called goldCOMP, controlled by them, to generate passive income for token holders.

Recently, a court filing by the FTX estate appeared to 'dox' -- or name -- Humpy and accused him of having ties to criminal networks. Nawaaz Mohammad Meerun, the person behind the alias, said in a statement to CoinDesk that the allegations of criminal connections are false.

Although some have described the "attack" as a consequence of voter apathy, OpenZeppelin, a security audit firm that Compoud's DAO has an engagement with, and an active participant on its governance forum sees it differently.

In an interview with CoinDesk during Devcon, Michael Lewellen describes what Humpy did as an exploit on the model itself.

"Governance models that are token holder dominant, where there are no checks on token holders in any meaningful sense, are ultimately all susceptible to this. It’s just a question of when," he said during a recent interview with CoinDesk.

In Lewellen's mind, while decentralization is a critical principle for blockchain technology, one that ensures trustlessness and security, it's going to be a challenge to implement for governance.

“Decentralization is like an objective good, but it’s not a good in governance the same way it’s a good in blockchain," he said. "More voices in that discussion aren’t necessarily better if a lot of those voices are not aligned with the DAO and are not informed.”

Know-your-customer (KYC) initiatives are part of the future of DAO governance, Lewellen says, and the industry needs to figure out how to do this to introduce accountability without compromising anonymity.

“There should be a way to verify this is a real person, and they’re not pretending to be others. For instance, zero-knowledge cryptography can help verify identities without exposing personal information,” he said.

Such measures would also prevent actors like Humpy from creating multiple delegate profiles to manipulate governance.

“If someone has significant governing power, they should be upfront about it,” Lewellin argued. “People should have the chance to recognize exactly what sort of influence they have and have the ability to counter it if necessary.”

And to prepare for another "Humpy," DAOs need to engage in wargaming exercises.

“Threat modeling for worst-case scenarios should be a standard practice,” Lewellin said. “Teams need real answers to questions like: What if a malicious actor acquires significant voting power? How do we respond on-chain?”

Apathy remains a significant challenge in DAO governance, with voter participation often low, meaning a solution lies in incentivizing good participatory behavior. Somehow, DAOs need to adopt governance models that prioritize decision-making quality over quantity, ensuring that critical decisions – especially those involving user funds and protocol security – are handled with care and expertise, rather than left solely to those holding the most tokens.

“We need to give token holders reasons to be responsible stewards of the protocol,” Lewellin said. "By rewarding participation, we can ensure that governance decisions are made by informed and engaged stakeholders.”

In an ideal world, DAOs that handle billions of dollars would structure their governance more like Meta and less like their current iteration.

"We need governance systems that reflect this reality, systems that balance decentralization with safeguards to ensure long-term sustainability,” Lewellin said.

A U.S. federal judge has ruled that participants in decentralized autonomous organizations (DAOs) can be held accountable for the actions of other members under state partnership laws.

On Nov. 18, Judge Vince Chhabria of the U.S. District Court for the Northern District of California determined that Lido DAO qualifies as a general partnership under California law, making its members liable for the organization’s actions.

Lido DAO Members Not Immune from Lawsuit

The ruling arose from a lawsuit filed by Andrew Samuels, who purchased tokens issued by Lido DAO.

Samuels alleged that the tokens were unregistered securities and claimed that Lido DAO should have registered them with the U.S. Securities and Exchange Commission (SEC).

“Samuels contends that because Lido DAO never registered the securities, it is liable for his losses under Section 12(a)(1) of the Securities Act,” the complaint stated.

The court ruled that Samuels sufficiently alleged that Lido DAO and its identifiable partners could not avoid liability.

The judge concluded that Lido DAO qualifies as a general partnership under California law, holding partners accountable for its activities.

Samuels specifically targeted four major institutional investors in Lido — Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures — claiming they acted as Lido DAO partners.

While the motions to dismiss filed by Paradigm, Andreessen Horowitz, and Dragonfly were denied, Robot Ventures escaped liability due to insufficient evidence proving it was a general partner.

A Blow to Decentralized Governance

Miles Jennings, general counsel at a16z Crypto, called the ruling a “huge blow” to decentralized governance.

He warned that under the judgment, even minimal participation, such as posting in forums, could expose DAO members to liability for the actions of other members.

This landmark case could significantly impact the governance and legal accountability of DAOs moving forward.

In a major legal decision, a United States Judge in California directed that Decentralized Autonomous Organizations (DAOs) should be recognised as partners as stipulated by the state’s partner laws.

Accordingly, this new verdict supports that each DAO member becomes liable for the activities of other DAO members. For this rulingUS Judge Vince Chhabria used Lido Liquid Staking DAO as a focus.

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

In a nutshell, such “partners” overseeing the actions of DAOs are liable for outcomes within their projects. Significantly, Judge Chhabria’s recent ruling has implications for DAOs and decentralized governance in the crypto space.

Background Story

Lido DAO’s case began with Andrew Samuels, a crypto user who invested in the Protocol’s native tokens, $LDO, suing Lido DAO for his investment losses.

According to Samuels, the $LDO tokens were not registered with the United States Securities and Exchange Commission (SEC)hence the organization was liable for his lost funds.

For context, institutional investors in Lido DAO like Andreessen HorowitzParadigm Operations and Dragonfly Digital Management also qualify as general partners per the state law and are also liable for the organization’s actions.

Notably, Robot Ventures, another alleged institutional investor in the DAO was dismissed on grounds of lack of evidence. According to the California judge, Lido’s decentralization does not translate to exclusion from statutory responsibilities.

Implications for DAOs

The California ruling deeming DAO members liable partners under state laws significantly impacts the decentralized governance model.

“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,” said Miles JenningsGeneral counsel at Andreessen Horowitz in a post on X

By holding all members accountable for a DAO’s actions, this decision increases personal liability, discouraging participation from both individual contributors and institutional investors. Such liability risks may lead DAOs to restructure as formal entities like Limited Liability Companies to protect members, potentially compromising their decentralized nature.

Additionally, this ruling creates regulatory uncertainty that could stifle innovation in the Web3 space, as developers and investors might avoid DAOs due to legal risks. Ultimately, this case highlights the urgent need for clearer regulations to balance accountability with the decentralized ethos of DAOs.

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<p>The post DAO Members Deemed Liable Under California’s Partnership Regulations first appeared on CoinBuzzFeed.</p>

The judge ruled DAO members liable under state partnership laws, impacting governance.

Lido DAO faces liability as a general partnership, marking a pivotal shift in DAO governance.

Legal risks for DAOs increase, raising concerns about stakeholder participation and liability.

A US federal judge declared on Monday that Lido DAO, the organization behind a popular liquid staking solution, will be considered a general partnership under state law. This can be considered a landmark decision in the endeavor to give legal shape to DAO.

Lawsuit and Securities Claim

The case was initiated by a suit submitted by Andrew Samuels, an investor in Lido DAO tokens. According to the lawsuit, the tokens are considered unregistered securities, and Lido DAO should have registered them with the SEC. The lawsuit stated:

Samuels contends that because Lido DAO never registered the securities, it is liable for his losses under Section 12(a)(1) of the Securities Act

The court concurred with Samuels that there was sufficient pleading of liability against Lido DAO and its members. According to Judge Chhabria, Lido DAO is a general partnership under California law. This classification ensures that members are answerable to the organization, making it a precedent for DAO governance structures.

Samuels identified four institutional investors as partners in Lido DAO. These include Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures. He stated that they fall under the state partnership laws as they fall into the governance.

Dismissal of Claims

The court made decisions on several motions. It dismissed the claims against Robot Ventures because there wasn’t enough proof to show it was a general partner. On the other hand, the court rejected motions to dismiss from Paradigm, Andreessen Horowitz, and Dragonfly.

According to legal scholars, this is a landmark ruling toward the decentralized governance model. Miles Jennings, the general counsel at a16z Crypto, described the ruling as a ‘huge blow’ to DAOs. He pointed out that even minor engagements, such as making posts in the DAO forums, could expose one to liability under general partnership laws.

This decision shows the potential for legal troubles when engaging in DAO activities. Regulating DAOs as general partnerships may dissuade potential stakeholders. This could deter them from involving themselves in decentralized organizational management. These frameworks would be essential for their long-term viability.

The post Court Rules Lido DAO Members Liable Under Partnership Laws appeared first on CryptoTale.

A recent court ruling has classified Lido DAO, the governing body behind the popular liquid staking protocol, as a general partnership under state law. This decision was made in response to a lawsuit filed by plaintiff Andrew Samuels, who incurred losses from purchasing Lido’s native LDO tokens. The court rejected Lido’s claim that it isn’t a legal entity and set a precedent for how profit-driven DAOs are treated.

Identifiable participants were found to be managing the DAO’s operations and, therefore, could not evade liability through its decentralized structure. The ruling has raised concerns about the implications for decentralized governance in the crypto world. With this ruling, any DAO participation could potentially hold members liable for the actions of other members under general partnership laws.

The decision has been criticized as a “huge blow to decentralized governance” by General Counsel and Head of Decentralization at a16z crypto, Miles Jennings. This ruling could have far-reaching implications for other DAOs and the crypto world as a whole, with potentially significant consequences for decentralized governance and the regulation of decentralized finance (DeFi) platforms.

As a result, the crypto industry will be closely watching how this ruling is applied and interpreted in future cases.

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<p>The post Lido DAO Classified as General Partnership, Setting Precedent for Profit-Driven DAOs first appeared on CoinBuzzFeed.</p>

A California judge has ruled that participants in decentralized autonomous organizations (DAOs) can be held liable for the actions of other members under state partnership laws.

On Nov. 18, United States District Judge Vince Chhabria determined that governing bodies behind Lido DAO qualify as partners under California’s general partnership laws. As a result, members may not avoid liability for the organization’s actions. 

Lido DAO “partners” not immune from lawsuit

The lawsuit stems from a complaint by Andrew Samuels, who purchased tokens issued by Lido DAO. The investor sued the entity to recover his losses. Samuels alleged the tokens were unregistered securities, arguing that Lido DAO should have registered them with the US Securities and Exchange Commission.

“Samuels contends that because Lido DAO never registered the securities, it is liable for his losses under Section 12(a)(1) of the Securities Act,” the lawsuit stated.

The court ruled that Samuels adequately alleged that Lido DAO and its identifiable partners could not claim immunity. According to the filing, the judge determined that Lido DAO qualifies as a general partnership under California law, holding partners accountable.

Samuels argued that four large institutional investors in Lido — Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management and Robot Ventures — acted as Lido DAO partners and should be liable. 

In response, the four entities involved filed motions to dismiss the case. However, only one was granted. The court filing stated: 

“The upshot is that the motion to dismiss filed by Robot Ventures is granted, because Samuels has not adequately alleged that Robot Ventures is a member of the Lido general partnership. All other motions to dismiss are denied.”

The judge found that Paradigm, Andreessen Horowitz and Dragonfly were ruled as general partners due to their alleged participation in Lido DAO governance and operations. However, Robot Ventures escaped liability due to insufficient proof that it was a general partner. 

A “huge blow” to decentralized governance

Miles Jennings, general counsel and head of decentralization at a16z Crypto, described the ruling as a huge blow to decentralized governance. 

Source: Miles Jennings

Jennings explained that under the ruling, even posting in forums could be enough to hold DAO members liable for other members’ actions under the general partnership laws. 

Magazine: Legal issues surround the FBI’s creation of fake crypto tokens 

AI16Z Token Soars 50% After a16z CTO's Public Endorsement, Boosting Market Cap to $480M

The AI16Z token saw a dramatic 50% price increase today after Eddy Lazzarin, chief technology officer at a16z, engaged with one of the DAO's founders on the X platform on Nov. 18. This interaction sparked renewed interest in the project, pushing the token's market cap to over $480 million.

AI16Z, launched in October, is a decentralized autonomous organization (DAO) controlled by an artificial intelligence agent named Eliza. Although it shares a name with the prominent venture firm a16z, the two entities are not directly connected. The surge in the token's value came after founder Shaw posted a request for a contact at a16z, prompting Lazzarin's response: “Check your DMs.” This hint of collaboration between a16z and AI16Z caught the crypto community’s attention.

In a remarkable 24-hour surge, the price of AI16Z skyrocketed by 55%, reflecting growing interest in the AI-powered DAO. AI16Z aims to revolutionize blockchain investments by using artificial intelligence to guide decisions and support projects.

ai16z’s token rocketed more than 50% on Nov. 18 after a top executive at venture firm a16z, the token’s namesake, acknowledged the project in a post on the X platform.

ai16z touts itself as a decentralized autonomous organization (DAO) directed by an artificial intelligence (AI) agent named Eliza. Its name references famed venture firm a16z but the entities are not directly related.

On Nov. 18, an X post from Eddy Lazzarin, a16z Crypto’’s chief technology officer, tipped an ongoing dialogue between the famed venture firm and its eponymous DAO.

Shaw, one of ai16z’s founders, posted on X asking for a contact at a16z. Lazzarin promptly responded saying “Check your [direct messages]”, implying an openess to publicly collaborate with the DAO.

In the past 24 hours, ai16z’s token price has risen nearly 55%, according to CoinGecko. It now trades at a more than $480 million market capitalization after launching on Oct. 24.

Source: ai16z

“If we are comparing this meta to defi summer then $ai16z is the $AAVE of this world... the tech that everybody forks,” psydonymous cryptocurrency influencer 0xMerp said in a Nov. 18 X post.

Merp is referring to decentralized finance (DeFi) protocol Aave’s prominent role in DeFi’s 2021 bull market.

ai16z aims to use decentralized AI to direct investments and support projects in the blockchain ecosystem.

“DAO holders will have the opportunity to advise on investment decisions, and our AI will diligently track the performance of these recommendations,” ai16z said in an Oct. 24 announcement.

“Those whose insights consistently yield positive outcomes will earn the trust and confidence of our AI.”

Source: CoinGecko

ai16z is governed by Eliza, “a flexible AI tool for creating unique, interactive characters that can connect to Discord and Twitter,” according to a16z’s website.

Eliza “can read links, PDFs, audio, and video, remember conversations, and summarize them for easy review.”

Eventually, ai16z aims to “deploy a network of specialized agents, each optimized to fulfill essential functions within the digital realm – from welcoming new members and moderating discussions, to participating in online social games and beyond,” it said on Oct. 24.

Agentic AI has emerged as a hot theme for liquid token investors after a16z co-founder Marc Andreessen donated $50,000 worth of Bitcoin to (BTC) to Truth Terminal, a semi-autonomous AI agent, in July.

Magazine: Legal issues surround the FBI’s creation of fake crypto tokens