TL;DR:
- A recent ruling in a class-action lawsuit against bZx DAO found that individual token holders could be held liable for the actions of the organization.
- While the ruling does not definitively find members of the DAO liable for any wrongdoing, it has raised concerns among legal experts about the potential liability of token holders.
- The ruling underscores the challenge DAOs face in navigating the existing legal system and may require them to make concessions to the centralized world.
- However, DAOs can still operate effectively by token-gating their membership, distributing voting power via tokens, and registering with federal authorities to prevent potential legal liability.
A federal judge’s recent ruling in a class-action lawsuit against bZx DAO has sparked concern among legal experts about the potential liability of individual token holders. The ruling found that owning a token could create legal liability for holders, raising questions about the future of decentralized autonomous organizations (DAOs). While the ruling does not definitively find members of the DAO liable for any wrongdoing, it has raised concerns about the potential implications for token holders.
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— Adam Cochran (adamscochran.eth) (@adamscochran) March 28, 2023
Dismissing the motion does not mean the court decided that owning the token makes you 100% liable – yet.
It just means they refused to take it off the table. Which is honestly surprising.
The ruling is seen as an escalation of hostility against DAOs, which aim to create a decentralized alternative to traditional company structuring. Some experts believe that the ruling challenges the very idea of decentralization and highlights the inherent incompatibility of the two ideas.
The court’s decision means that the plaintiffs, victims of a hack that drained bZx, a DeFi lending protocol, for $55 million, can sue not just the leadership of bZx but also the token-holding members of the DAO. The Commodity Futures Trading Commission also found that membership in the bZx DAO could expose individuals to legal liability when it fined the DAO’s founders $250,000 for allegedly illegally offering “retail commodity transactions.”
Yes this defines a DAO as a general partnership and makes everyone, including token holders jointly and severally liable for the what happened in the DAO. This is the main bad news. Random degens voting in a DAO can be considered liable for what a DAO does.
— drnick 🗳️² (@DrNickA) March 28, 2023
Legal experts note that DAOs can still operate effectively by token-gating their membership, distributing voting power via tokens, and registering with federal authorities to prevent potential legal liability. The ruling underscores the broader reality check currently facing the crypto industry as it is absorbed by existing state structures. While DAOs may find a path forward, they are likely to face challenges and make concessions to the reality of existing in a centralized world.
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