Former LDO Holder Takes Crypto Losses to Court in Class-Action Lawsuit Against Lido DAO

Class-action Lawsuit Against Governing Body of Liquid Staking Protocol Lido

A holder of LDO tokens initiated a class-action lawsuit against the governing body of liquid staking protocol Lido, as per a complaint filed in a San Francisco United States District Court on Dec. 17. The lawsuit claims that Lido’s LDO token is an unregistered security and that the Lido decentralized autonomous organization (Lido DAO) is responsible for plaintiffs’ losses due to the token’s price decline.

Lido is a liquid staking protocol that enables users to delegate their Ether (ETH) to a network of validators and earn staking rewards while also holding a derivative token called stETH that can be used in other applications. It is governed by holders of LDO, which form the Lido DAO.

The lawsuit was initiated by Andrew Samuels, a resident of Solano County, California, as stated in the document. The defendants in the case are Lido DAO, venture capital firms Paradigm, AH Capital Management, Dragonfly Digital Management and investment management company Robert Ventures. The document alleges that 64% of LDO tokens “are dedicated to the founders and early investors like [these defendants],” and thus, “ordinary investors like Plaintiffs are unable to exert any meaningful influence on governance issues.”

The filing claims that Lido DAO initially started as a “general partnership” made up of institutional investors. Later, it decided to have “a potential ‘exit’ opportunity.” To facilitate this, it chose to sell LDO tokens to the public by convincing centralized exchanges to list them. Once the tokens were listed, plaintiff Samuels and “thousands of other investors” purchased them. The price then dropped, resulting in losses for these investors, according to the document. It claims that these firms are liable for the losses.

The SEC and Lido DAO

SEC Chair Gary Gensler has stated that Lido DAO could be considered a security due to the presence of a “group in the middle” between tokens and investors, and the public’s expectation of profits.

Cointelegraph reached out to Lido DAO representatives, but have yet to receive a response.

According to DefiLlama, Lido DAO is the most popular liquid staking derivative, with over $19 billion worth of cryptocurrency locked in its contracts. The Lido governance token achieved its all-time high of $6.41 on August 20, 2021, and is currently trading at $2.08.