A lawsuit filed on December 17 in the U.S. District Court in San Francisco by an LDO token holder targets Lido, the overseer of a liquid staking protocol. The legal action asserts that Lido's LDO token lacks proper registration as a security, attributing the decline in the token's value to the liability of the Lido Decentralized Autonomous Organization (DAO).
Lido operates as a liquid staking protocol allowing users to delegate their Ethereum validator network and receive staking rewards. Alongside this, it provides a derivative token called stETH usable in various applications. Managed by LDO holders forming the Lido DAO, the lawsuit was filed by Andrew Samuels, a resident of Solano County, California. The lawsuit lists Lido DAO, along with venture capital firms such as Paradigm, AH Capital Management, Dragonfly Digital Management, and investment management firm Robot Ventures as defendants. The filing underscores that 64% of LDO tokens are exclusive to founders and early investors like these defendants, limiting the influence of average investors like the plaintiff on governance matters.
The lawsuit highlights the origins of Lido DAO as a "general partnership" initially composed of institutional investors. Later, recognizing a possible "exit" opportunity, it opted to offer LDO tokens to the public. Centralized exchanges were persuaded to list these tokens, prompting the purchase of tokens by plaintiff Samuels and numerous other investors. Subsequent price declines caused losses for these investors, leading to the claim that these companies should be held accountable for the losses incurred.
The filing references SEC Chairman Gary Gensler's stance on LDOs, indicating they are considered securities due to an alleged "intermediate group" influencing public profit expectations. Lido has notably amassed the highest total value locked in liquid staking derivatives, exceeding $19 billion in cryptocurrency within its contracts. The Lido governance token reached an all-time high of $6.41 per coin during the previous bull market, contrasting sharply with its current value of $2.08 per coin.
