Decentralized finance (DeFi) is entering a new era of accountability. As U.S. courts revisit how Decentralized Autonomous Organizations (DAOs) fit into existing laws, token holders, contributors, and even passive voters now face potential liability. The December 11, 2024 Samuels v. Lido DAO ruling marked a turning point – one that global DAO operators, especially those eyeing Dubai’s Virtual Assets Regulatory Authority (VARA), can no longer ignore.
This in-depth guide breaks down what the Lido ruling means, how U.S. courts are reframing DAO structures as general partnerships, and how VARA’s governance regime provides a safer, structured path forward for DAO operators.
Understanding DAOs and the Shifting Liability Landscape
What Is a DAO?
A Decentralized Autonomous Organization (DAO) is a blockchain-based structure where decisions occur through smart contracts and token-holder voting. Instead of a CEO or board, DAO members coordinate through governance tokens – such as LDO for Lido DAO – to decide on treasury actions, upgrades, and strategic direction.
The challenge? Courts now view these collective activities as signs of a general partnership, leading to shared responsibility and potential personal liability.
Why U.S. Liability for DAOs Is Rising
A clear trend is emerging through 2024–2025:
- Ooki DAO (2022) established that DAOs can be treated as unincorporated associations.
- New rulings in 2024–2025 strengthen the idea that if DAO participants share profits, losses, or governance control, they resemble general partnerships.
This interpretation is reshaping the legal exposure of DAO token holders – especially those participating in treasury votes or governance proposals.
The Lido DAO Case: A Defining Moment
Case Background
Lido DAO manages the Lido liquid staking protocol, one of the largest in the Ethereum ecosystem. In 2024, plaintiff Joshua Samuels filed a securities class action alleging LDO token sales were unregistered securities, causing investor harm after losses.
Major VCs such as Paradigm and a16z, along with DAO contributors, disputed the case, arguing Lido DAO was not a legal entity.
What the Court Ruled (December 11, 2024)
The Northern District of California rejected all dismissal motions and held:
- Lido DAO operates as a general partnership due to shared control and economic alignment.
- Token holders and multisig signers may face personal liability for alleged securities violations.
- VC firms may be secondarily liable if they had influence over governance or strategy.
This ruling has opened the door to similar lawsuits across DeFi in early 2025 and raises the risk of SEC enforcement activity in the coming months.
Lessons for Global DAO Operators
What DAO Teams Must Take Seriously
- Partnership Risk: Voting, proposing changes, or controlling treasury flows can resemble partnership management.
- Token Design Risk: Governance tokens with profit-enhancing mechanisms often meet the Howey standard for investment contracts.
- Personal Exposure: Pseudonymity offers no shelter – on-chain governance is fully traceable.
- Investor Remedies: Plaintiffs may reclaim the entire token purchase price with interest, raising financial risks.
Why the Lido Ruling Matters Worldwide
Although this decision came from a U.S. court:
- DAOs with U.S. users face immediate risk.
- SEC jurisdiction often extends internationally.
- Investors outside the U.S. can still file claims in American courts.
This creates urgency for DAO projects seeking compliant global structures – Dubai’s VARA stands out as one of the most forward-looking regulatory regimes addressing DAO operations.
VARA’s Governance Framework for DAOs
Dubai’s Virtual Assets Regulatory Authority (VARA) governs virtual asset service providers (VASPs) across Dubai (excluding DIFC). The 2024–2025 guidance introduces a clear regulatory path for DAOs to operate with legal certainty.
Core Features of VARA’s DAO Regulation
1. Responsible Individuals
DAOs must appoint at least two accountable individuals, approved by VARA. Their roles include oversight, reporting, and ensuring the DAO meets governance and AML requirements.
2. Mandatory Governance Documentation
DAOs must submit:
- Governance frameworks
- Token-holder voting rules
- Smart-contract audit reports
- Dispute-resolution mechanisms
Annual audits and contract reviews are mandatory.
3. AML/CFT Compliance
For DAOs classified as VASPs:
- Travel Rule compliance applies to transfers over USD 1,000
- Screening of counterparties and sanctions databases is required
4. Capital + Reserve Conditions
Based on activity category, DAO-linked VASPs must maintain:
- Base capital of AED 100,000 to 1,500,000
- 100% reserve backing for stablecoin or reserve-like assets
5. Legal Personality Requirement (2025 Update)
VARA’s DAO Playbook (Nov 2025) requires DAOs to use:
- A UAE foundation for legal entity status paired with
- On-chain voting for community participation
This hybrid model introduces accountability without undermining decentralization.
Connecting Lido Lessons to VARA Compliance
Risk Comparison Chart
| Aspect | U.S. (Lido) Exposure | VARA Mitigation Strategy |
| Entity Status | General partnership; joint liability | Legal entity via UAE foundation |
| Token Issuance | Risk of unregistered securities | Category 1 VASP issuance license |
| Governance | Participants personally liable | Responsible individuals + audits |
| Enforcement | Class actions, SEC scrutiny | VARA supervision, disclosures |
Strategic Outcomes for DAO Founders
VARA directly addresses the main weaknesses exposed by Lido:
- No more “headless” DAOs
- Clear accountability prevents partnership classification
- Hybrid structures limit individual exposure
- Token frameworks aligned with regulatory approval
This allows DAOs to scale with regulatory certainty while avoiding U.S.-style liability traps.
Implementation Roadmap for DAO Governance Under VARA
A. Scoping & Structuring (1–2 Months)
- Map U.S. exposure
- Set up a UAE foundation
- Design governance mechanics
B. Licensing & Approvals (3–6 Months)
- File for Category 1 VASP license
- Submit DAO governance framework
- Prepare financial and AML documentation
C. Governance Build-Out
- Draft bylaws
- Appoint responsible individuals
- Integrate AML/CFT tools
D. Ongoing Compliance
- Monthly compliance reports
- Annual technical and financial audits
- DAO upgrade notifications to VARA
E. Risk Mitigation
- Run liability simulations
- Secure D&O insurance
- Conduct token-design reviews to avoid securities triggers
Key Takeaways
- The Lido ruling brings DAO liability into sharp focus, treating them as partnerships under U.S. law.
- VARA’s framework provides a safer structure, using foundations, responsible persons, and stringent documentation.
- DAO teams must transition toward structured governance to prevent U.S. enforcement risks.
- Dubai’s regulatory regime presents a strong pathway for global expansion with clarity and protection.
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Legal Notice: This material is for informational purposes only and does not constitute legal advice. Please consult CRYPTOVERSE Legal for personalized support.ations evolve rapidly; consult qualified counsel for advice tailored to your circumstances.
FAQs
1. Does the Lido ruling affect DAOs outside the U.S.?
Yes, SEC jurisdiction can apply if U.S. investors, infrastructure, or markets are involved.
2. What is a “responsible individual” under VARA?
A VARA-approved person with governance authority – typically UAE-based directors or stewards.
3. Can DAOs issue tokens under VARA without forming a foundation?
No, token issuance requires legal personality through a foundation or trust.
4. What is the typical timeline for DAO approval under VARA?
Around 3–6 months from submission.
5. How can DAOs avoid securities claims similar to Lido?
Design utility-focused tokens and obtain regulatory approvals before issuance.