A complaint filed in federal court will test the boundaries of protection from liability for individuals behind decentralized autonomous organizations.
On May 2, 2022, a putative class action was filed in the US District Court for the Southern District of California against the bZx protocol decentralized autonomous organization (DAO), the DAO’s two individual co-founders, two limited liability corporations (LLCs) that invested in the DAO and participated in its governance, and several other associated entities. DAOs are (in theory) organizations without a centralized leadership structure like traditional corporations or other limited liability entities. Their governance is generally driven by the coded terms of smart contracts maintained on a blockchain ledger, rather than top-down by a management team. And rather than having a hierarchy of control, DAO stakeholders with tokenized voting rights are typically considered “equals” in which one token equals one vote.