A support for Lido initiated a class action lawsuit against the governing body of liquid staking protocol Lido, according to a complaint filed in a US District Court in San Francisco on December 17. The lawsuit alleges that the Lido token is an unregistered security and that Lido is a decentralized autonomous organization (Lido DAO) is responsible for the plaintiffs' losses from the token's price decline.
Lido is a liquid betting protocol which allows users to delegate their Ether (ETH) to a network of validators and earn staking rewards, while also owning a derivative token called โstETHโ that can be used in other applications. It is governed by the Lido Holders (LDO), who collectively form the Lido DAO.
The lawsuit was filed by Andrew Samuels, who resides in Solano County, California, according to the document. The defendants are Lido DAO, as well as venture capital firms Paradigm, AH Capital Management, Dragonfly Digital Management, and investment management firm Robert Ventures. The document alleges that 64% of Lido tokens "are dedicated to founders and early investors such as [these defendants]โ, and therefore, โordinary investors like the Plaintiffs cannot exert any significant influence on governance issues.โ
According to the document, Lido DAO began as a โgeneral partnershipโ formed by institutional investors. But then he decided to have โa potential 'exit' opportunity.โ To facilitate this opportunity, it decided to sell Lido tokens to the public by convincing centralized exchanges to make them available on their platforms. Once the tokens were listed, plaintiff Andrew Samuels and โthousands of other investorsโ purchased them. The price then fell, causing losses to these investors, the document alleges. It claims that these companies are responsible for the resulting losses.
Related: LidoDAO launches the official version of wstETH on Base
Citing U.S. Securities and Exchange Commission Chairman Gary Gensler, the document stated that Lido is a security because there is supposedly "a group in the middle." [between the tokens and investors] and the public anticipates profits based on that group.โ
Cointelegraph reached out to Lido DAO representatives but did not receive a response at the time of publication.
According to data from blockchain analysis platform DeFi Llama, Lido has the largest total value locked of any liquid staking derivative, with over $19 billion in cryptocurrencies locked within its contracts. The Lido governance token reached an all-time high during the last bull market, when it sold at $6.41 per coin on August 20, 2021. It currently stands at $2.08 per coin.
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