Lido DAO Takes Legal Step to Defend Itself in the US Judicial System

By Shaurya Malwa.

Decentralized autonomous organization (DAO) Lido has authorized legal representation in a class-action lawsuit filed in the US District Court for the Northern District of California.

In a snapshot vote that passed on Tuesday at 12 p.m. EST, Lido members voted to appoint Dolphin CL, LLC (Dolphin) to file a motion to dismiss the complaint on the grounds that Lido “is not a general partnership or other legal entity [and] is not a proper defendant of this lawsuit.”

The lawsuit, which was initially filed last year and amended in April, alleges that Lido DAO is a “general partnership governed by large holders of LDO” and that its governance token LDO is an unregistered security. The plaintiff, Andrew Samuels, purchased roughly 132 LDO tokens in April and May 2023 on US-regulated exchange Gemini and sold them at a loss in June of the same year, according to the lawsuit.

The attorneys representing the plaintiff – Jason Harrow, Charles Gerstein, James Crooks, and Michael Lieberman – did not immediately respond to Unchained’s request for comment.

On June 30, 2023, LDO was trading at $2.05 and by Jan. 1, 2024 the token was worth $2.92, representing a 42% increase. Since the first day of 2024, LDO decreased by more than 46% to $1.57 at the time of writing, according to CoinGecko data.

The snapshot vote comes more than a week after the SEC filed a lawsuit against Ethereum software provider Consensys that claimed Lido’s liquid staking token, stETH, is an unregistered security.

In an announcement on June 28, the SEC accused Consensys of unlawfully offering and selling unregistered securities, specifically the liquid staking tokens of Lido and Rocket Pool, via Metamask – a crypto wallet facilitating cryptocurrency staking and swapping. Staking service tokens, composed of LDO and RPL, have been the second-worst performing sector in the crypto ecosystem in the past seven days, according to blockchain analytics firm Artemis.

As a result of the snapshot vote passing with unanimous support, Lido DAO is to appoint and fund Dolphin with 200,000 DAI ($200,000) to engage legal counsel, “currently expected to be Brown Rudnick, led by partner Stephen Palley,” according to the vote’s initial governance proposal found in Lido’s governance forums. Palley also did not immediately respond to Unchained’s email and LinkedIn message.

While governance authorizes Dolphin to make a limited appearance and file a motion to dismiss the complaint on the grounds that Lido “is not a general partnership or other legal entity [and] is not a proper defendant of this lawsuit,” governance explicitly states what Dolphin is not authorized to do, namely serve as a general representative proxy of Lido DAO or to receive legal notices on behalf of LDO token holders.

The class-action complaint includes several defendants namely Lido DAO and several venture firms including Paradigm, Andreessen Horowitz (a16z), Dragonfly, and Robot Ventures, which is managed by Tarun Chitra and Robert Leshner, who are co-hosts of Unchained podcast The Chopping Block.

The complaint also specifically names Lido’s marketing lead Kasper Rasmussen, former chief technology officer of validator firm P2P Vasiliy Shapovalov, co-founder of cyber•Fund Konstantin Lomashuk, and Jordan Fish, who goes by “Cobie” on social media, as founders and key collaborators of Lido. Rasmussen declined to comment on the lawsuit and vote.

On June 27, the court held that Lido DAO had been properly served and “has 14 days to respond or risk a default judgment on the plaintiffs’ claims,” according to the snapshot vote. However, none of the venture firms that were named as defendants “are responding as or on behalf of Lido DAO, and in fact they are denying they are part of Lido DAO,” states the now-passed governance proposal.

As a result of the lack of a response to the filed complaint, Lido’s governing body passed the vote to prevent the risk of the court from entering a default judgment against Lido DAO.

While there is difficulty in predicting whether the court would behave similarly to those in the Ooki DAO court case, which led to “successful takedowns of Ooki-DAO-related web2 infra,” the risk of a default judgment is “material,” especially “if the default judgment is weaponized to cause third parties to deny Lido DAO related access to Web2 infrastructure, to delist LDO from trading venues, etc,” according to the snapshot vote.

Addresses identified as belonging to crypto researcher Hasu, trading firm Wintermute’s team dedicated to helping govern crypto protocols, and pseudonymous researcher Banteg had each participated in the governance snapshot vote that ended on Tuesday.

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