Why a16z’s uproar over the Lido DAO ruling is ‘overblown’

Corners of the DeFi community had an “overblown” reaction after a judge allowed a lawsuit against Lido DAO and three of its investors to go ahead.

That’s according to Nathan van der Heyden, head of business development and governance design at decentralised autonomous organisation-tooling platform Aragon, who spoke with DL News after the Monday ruling unleashed online protests among DeFi stakeholders.

Judge Vince Chhabria, of the Northern District of California, said on Monday that he would not dismiss a lawsuit against Lido DAO, Paradigm, Andreessen Horowitz, and Dragonfly.

That just means the lawsuit moves ahead, Van der Heyden said.

Plus, Donald Trump has recaptured the White House, and DAOs have a bright future, he said. Crypto-friendly legislation will remove the basis for lawsuits like this to be brought in future.

“Republicans control both chambers of Congress, and Trump won’t veto” crypto-friendly legislation, he said. “It’s the friendliest crypto environment possible.”

What’s at stake?

Participants in DAOs like to say they’re networks of developers and contributors, and can’t be held liable for how their projects are used.

Some lawyers and regulators, however, say most DAOs aren’t all that decentralised, and have founders or backers who can be held liable.

Chhabria seemed to agree with that stance by allowing the case against Lido DAO and the investors to go ahead.

This case “presents several new and important questions about the ability of people in the crypto world to inoculate themselves from liability,” Chhabria said in an order on Monday.

The lawsuit

The lawsuit was initiated by Andrew Samuels, an investor who bought around 130 Lido tokens on Gemini exchange in mid-2023, and then sold them at a loss a few weeks later.

Samuels is looking to represent every investor who bought the token at around the same time.

Samuels sued in December, saying Lido was in violation of the US securities laws. His contention was that Lido should have registered with the Securities and Exchange Commission.

He also sued Paradigm, Andreessen Horowitz, Dragonfly, and Robot Ventures, alleging they are in partnership with Lido DAO and are therefore liable for its misconduct.

The investment firms responded that their investment does not constitute a partnership under California law.

Chhabria said that at this early stage of the suit, Samuels only needs to adequately allege that a general partnership exists, and has done so.

He did, however, dismiss the suit against Rocket.

DAO reaction

Crypto honchos lambasted the judge’s order.

“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,” Miles Jennings, general counsel and head of decentralisation at a16z’s crypto arm wrote in a post on X.

It’s this kind of reaction that Van der Heyden said was “overblown.”

Many defendants try to stop their suits from going ahead by filing motions to dismiss — essentially asking the judge to throw out the case because it doesn’t meet certain criteria.

Chhabria’s decision merely means the case will proceed. It does not set precedent, Van der Heyden said — meaning it’s not a ruling that gets applied in future to similar cases.

Chhabria acknowledges in his order that during the next phase of the case, when both sides present information to the court, it could become clear that the investment firms are not in a partnership with Lido.

Positive outlook for DAOs

Van der Heyden said the outlook for DAO regulation in the US is very positive.

Samuels’ argument hinges on arguing that Lido should register with the SEC under the US’s securities laws, Van der Heyden said

It’s the same argument made by SEC chair Gary Gensler, whose catchphrase for crypto firms is that they should just “come in and register.”

However, with Trump winning the presidency and the Republicans controlling both houses of Congress, lawmakers will likely give crypto firms and projects other, friendlier avenues for registration with regulators.

Reach out to the author at joanna@dlnews.com.