DAO Token Holders Face Lawsuit Liability
A U.S. judge ruled that bZx DAO token holders may be held liable in a class action lawsuit following a $55 million hack in November 2021.
🔎 The Deets
- Court classifies bZx DAO as a general partnership.
- DAO token holders may owe a duty of care to investors.
- bZx lost $55 million in a phishing attack.
- Plaintiffs claim they lost $1.7 million in the attack.
The court ruled that bZx DAO is plausibly a general partnership, meaning that defendants who hold the DAO's governance tokens could be liable for the group's obligations under California partnership law. The ruling stems from a class action lawsuit filed by victims of the $55 million hack that occurred in November 2021.
The Court finds that Plaintiffs' injury is fairly traceable to the bXz DAO general partnership and that they have standing to sue the alleged general partners Hashed and AGE. The Hashed Defendants' motion to dismiss for lack of standing is DENIED.Hon. Larry Alan Burns
The court agreed with the plaintiff's position that DAO token holders owed a duty of care to protocol investors and that they failed to ensure adequate security to prevent the hack in 2021. The bZx platform suffered significant losses, including the plaintiffs claiming a total loss of $1.7 million in the attack.
bZx, a DeFi margin trading protocol, transitioned to a DAO controlled by bZx DAO in August 2021. Another community called Ooki DAO later succeeded bZx DAO, taking ownership of the protocol. Ooki DAO is currently the subject of a lawsuit by the U.S. Commodity Futures Trading Commission.
❗Why It Matters
This ruling has significant implications for the broader crypto and NFT ecosystems, as it establishes that DAO token holders may be held liable for a project's failures or losses. This could potentially change the dynamics of governance token investments and the responsibilities of token holders, potentially increasing due diligence and the involvement of investors in a project's security and operations.