Legal Challenges Facing DAOs in the Web3 Space: Decentralization Does Not Mean No Responsibility

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

The Legal Identity Dilemma of DAO

The core of the court's ruling is to clearly point out that, although the DAO operates under the banner of Decentralization, its mode of operation aligns with the characteristics of a general partnership. Under California law, the formation of a partnership does not require a formal registration process, as long as there is a common interest driving it and corresponding collaborative behavior. The court believes that the governance method of the DAO and the identifiable roles of its members make it conform to the legal definition of a partnership.

This ruling sets a precedent for how "Decentralization" can be positioned within a legal framework. Many DAOs attempt to circumvent traditional corporate laws and partnership liabilities through decentralized structures, claiming that they are not formal legal entities and that there is no legal joint liability among participants. However, this ruling clearly sends a message: decentralized organizational models cannot simply become tools for evading legal responsibilities.

Legal Risks for DAO Participants

According to the court's ruling, some organizations that actively participate in DAO governance and proposal voting have been identified as "partners". This means that these institutions, which hold tokens and actively engage in governance, have transcended the role of mere investors and become co-managers of the partnership, thus bearing joint liability 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 actively participating in governance. If a DAO is regarded as a general partnership, its partners will bear unlimited liability for the organization’s debts and actions. This may prompt DAO members to reconsider the consequences of participating in governance; even simple actions like posting in community forums or participating in votes may be seen as "active participation," thus entangling them in complex legal disputes.

Legal Challenges and Opportunities of Decentralization Governance

This ruling undoubtedly impacts the decentralization governance of the entire Web3 field. Some legal experts believe that the court's decision "deals a significant blow to decentralization governance," as it suggests 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 may also become an opportunity to promote change within the industry. How DAOs find the best balance between decentralization and legal compliance in their design and operation is a key issue that various projects must face in the future. This means that decentralized autonomous organizations may need to gradually adopt hybrid governance structures or reconsider their legal forms, possibly choosing to register as limited liability companies or other forms of legal entities to limit participants' liability risks.

At the same time, this has brought new exploration directions to the Web3 compliance field. How to design a governance framework that maintains decentralization while providing legal protection for participants is one of the most challenging topics in the compliance services field in the current and coming years. The future of DAO may not lie in complete decentralization, but in the combination of flexible organizational structure and legal identity, finding the best intersection of innovation and compliance.

Long-term Impact and Development Trends in the Industry

This ruling may just be the beginning of future waves of regulation. As Web3 technology gradually infiltrates various fields such as finance, gaming, and social media, traditional regulatory bodies will also gradually strengthen their focus and control over decentralized organizations. This case marks the transition of DAO governance from an experimental technological concept to a legal reality. In this process, the clarity of regulation may be an important guarantee for the healthy development of DAOs.

For DAOs, one possible direction for the future may be to introduce "legal wrapping", that is, providing legal exemptions for participants through the registration of legal entities beneath the surface of decentralization. This can satisfy the innovative demands of decentralization while legally reducing risks. The future of Web3 may not solely pursue complete decentralization, but rather find a more pragmatic middle ground. Decentralized projects require more sophisticated legal advisory and compliance support to ensure that they can withstand the uncertainties brought about by the ever-changing legal environment while continuing to innovate.

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