In a landmark decision, a U.S. federal judge in California has ruled that members of decentralized autonomous organizations (DAOs) can be held liable for the actions of other participants under state partnership laws. The ruling has sparked widespread debate about the future of decentralized governance models.

Judge Vince Chhabria, from the Northern District of California, ruled on Nov. 18 that Lido DAO qualifies as a general partnership under California law. This decision stems from a lawsuit filed by investor Andrew Samuels, who claimed losses after purchasing unregistered tokens issued by Lido DAO. Samuels argued that Lido DAO failed to register the tokens as securities with the U.S. Securities and Exchange Commission (SEC), violating federal securities laws.

The court dismissed claims against Robot Ventures, one of the entities involved, due to insufficient evidence of its role as a partner. However, other major institutional players—Paradigm Operations, Andreessen Horowitz, and Dragonfly Digital Management—were not as fortunate. The judge found these firms could be held accountable for Lido DAO’s actions because of their active involvement in its governance.

This case could have far-reaching consequences for DAOs, as it challenges the premise that decentralized entities offer legal immunity for participants. Miles Jennings, general counsel for a16z Crypto, described the ruling as a significant setback, warning that even minimal involvement, such as posting in DAO forums, might expose members to liability under partnership laws.

This ruling has amplified concerns within the Web3 community about how DAOs will navigate legal risks while maintaining their decentralized ethos. As debates intensify, the decision signals a pivotal moment in the evolution of decentralized governance.