Lido DAO faces class action: investor alleges unregistered security and losses

Lido DAO faces class action: investor alleges unregistered security and losses

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by Liza Tanasova

3 years ago


In a class-action lawsuit filed in a San Francisco court on December 17, a Lido token holder, Andrew Samuels, has accused the liquid staking protocol's governing body, Lido DAO, of being an unregistered security and held it responsible for the decline in the token's price. Samuels claims that 64% of Lido tokens are controlled by venture capital firms, including Paradigm, AH Capital Management, Dragonfly Digital Management, and Robert Ventures, leaving ordinary investors with no meaningful influence on governance matters. Lido DAO, which oversees the liquid staking protocol allowing users to delegate Ether and earn staking rewards, is now facing legal scrutiny for its token's alleged security status and the losses incurred by investors due to its price decline.

The lawsuit contends that Lido DAO initially functioned as a general partnership of institutional investors but later opted for a potential exit opportunity. To facilitate this, it purportedly convinced centralized exchanges to list Lido tokens, leading to purchases by investors like Samuels. The subsequent decline in token prices is cited as the cause of financial losses for these investors, with the lawsuit seeking accountability from the venture capital firms mentioned.

Referencing comments by Gary Gensler, the chair of the United States Securities and Exchange Commission, the lawsuit argues that Lido could be considered a security due to the presence of an alleged group in the middle between tokens and investors, with the public expecting profits based on this intermediary group.

Despite attempts to reach out to Lido DAO representatives, no response has been received at the time of publication. Data from DeFi Llama, a blockchain analytics platform, indicates that Lido holds the largest total value locked among liquid staking derivatives, with over $19 billion in cryptocurrency locked in its contracts. The governance token of Lido reached its all-time high during the last bull market at $6.41 per coin on August 20, 2021, but currently sits at $2.08 per coin.

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