Lido DAO Facing Class Action Lawsuit Over Alleged Unregistered Security Token
Summary:
A class action lawsuit has been filed against Lido DAO, a liquid staking protocol body, by a token holder who alleges the Lido token is an unregistered security. The plaintiff holds Lido DAO and several venture capital firms responsible for financial losses resulting from the decline in token price. The suit alleges that Lido DAO sold the tokens publicly to facilitate a potential exit opportunity for institutional investors. Following the sale, the token's price plunged causing significant losses to the investors. Despite these legal issues, Lido remains the most significant player in liquid staking with over $19 billion worth of cryptocurrency locked in its contracts.
There's a lawsuit underway, brought against the body in charge of the liquid staking protocol Lido by a token holder, as per a complaint document filed at a District Court in San Francisco, United States on December 17. The allegation centers around the Lido token being an unrecognized security and the decentralized autonomous organization of Lido (the Lido DAO) being held accountable for losses suffered by plaintiffs due to a decrease in the token's value. Lido DAO was taken to court on December 17. Lido, a liquid staking protocol, lets its users delegate their Ether (ETH) to a validator network to acquire staking rewards, while carrying a derivative token - "stETH" - that has applications elsewhere. Governance of this system is in the hands of the Lido (LDO) holders who make up the Lido DAO collectively. Andrew Samuels, a resident of Solano County, California initiated the lawsuit. The defendants named in the suit include Lido DAO, venture capital firms Paradigm, Dragonfly Digital Management, AH Capital Management and investment management firm, Robert Ventures. It is the assertion of the document that 64% of the Lido tokens are held by founders and early investors including the defendants, hence the lack of significant influence wielded by ordinary investors like Plaintiffs over governance matters. It appears from the court documents that Lido DAO began its journey as a general partnership composed of institutional investors before transitioning into a 'potential exit opportunity'. To realize this opportunity, Lido tokens were sold publicly, with centralized exchanges enlisted to list them. Following their listing, many investors, including plaintiff Andrew Samuels, bought these tokens, only for their prices to subsequently drop, causing financial losses. The document places blame for these losses on these firms. The filing claims, quoting U.S. Securities and Exchange Commission Chair Gary Gensler, that the Lido security label was warranted since purportedly a middle group existed between tokens and investors on which public profit expectations depended. Contact with Lido DAO representatives was unsuccessful at the time of publishing. DeFi Llama, a blockchain analytics platform, points out that Lido possesses the highest total value locked within any liquid staking derivative, with over $19 billion worth of cryptocurrency kept within its contracts. The governance token of Lido hit an all-time high at $6.41 per coin on August 20, 2021, in the last bull market, and is now at $2.08 per coin.
Published At
12/18/2023 9:00:00 PM
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