Web3 Decentralized Autonomous Organization Facing Legal Challenges

Recently, the Northern District Federal Court of California made a striking ruling in a case involving the Web3 Decentralized Autonomous Organization (DAO). The court determined that a certain DAO should be regarded as a general partnership, a ruling that not only denied the DAO's claim that its decentralized structure could evade legal liability but also has far-reaching implications for the compliant development of the entire Web3 industry.

Decentralization is not equivalent to irresponsibility

The court pointed out in its ruling that, although the DAO operates under the name of decentralization, its operating method actually conforms to the characteristics of a general partnership. Under California law, the formation of a partnership does not require a formal registration process; it only requires the existence of a common interest-driven and corresponding collaborative behavior. The court found that the governance structure of the DAO and the recognizability of the roles of its members made it fit the legal definition of a partnership.

This ruling sets a precedent for the positioning of "Decentralization" within the legal framework. Many DAOs attempt to circumvent traditional corporate law and partnership liabilities through decentralized structures, but this ruling clearly sends a message: decentralized organizational models cannot simply be tools for evading legal responsibilities.

Legal Risks Faced by Participants

According to the court's ruling, several well-known institutions have been identified as "partners" of the DAO because these institutions actively participated in the governance and proposal voting of the DAO. This means that these institutions, which hold tokens and actively participate in governance, have transcended the identity of mere investors and have become co-managers of the partnership, thereby bearing joint responsibility for the overall actions of the DAO.

The legal risk lies in the fact that the "partners" of a DAO are not limited to the creators and core developers of the organization, but may also include all members who actively participate in governance. If the DAO is considered a general partnership, its partners will bear unlimited liability for the organization’s debts and actions. This ruling may prompt DAO members to reevaluate the consequences of participating in governance; even simple actions such as posting on community forums or participating in votes could be seen as "active participation," thereby involving them in complex legal disputes.

Challenges and Opportunities of Decentralization Governance

This ruling undoubtedly impacts the decentralized governance of the entire Web3 space. Some legal experts believe that the court's ruling "deals a significant blow to decentralized governance," as it means that even minimal governance participation could result in substantial legal liabilities. For developers and investors in Web3 projects, this undoubtedly increases operational and legal risks.

However, such challenges could also become an opportunity to promote changes within the industry. A key question that various projects must face moving forward is how to find the best balance between decentralization and legal compliance in the design and operation of DAOs. This means that decentralized autonomous organizations may need to gradually adopt hybrid governance structures in the future, or reconsider their legal forms, possibly choosing to register as limited liability companies or other forms of legal entities to limit the liability risks of participants.

Long-term Impact and Development Direction of the Industry

This ruling may just be the beginning of a future wave of regulation. As Web3 technology gradually infiltrates various fields such as finance, gaming, and social interactions, traditional regulatory bodies' attention and control over Decentralized Autonomous Organizations will also gradually strengthen. For DAOs, one possible future direction may be to introduce "legal wrapping," which means providing legal exemptions for participants by registering legal entities beneath the decentralized surface.

The fast-paced era requires more flexible legal solutions. Future DAOs may no longer be completely free utopias but will find a dynamic balance between ideals and reality. For all DAO participants, compliance and risk control will no longer be optional add-ons, but key issues that relate to the survival of the project.