US Court Ruling: DAOs May Be Viewed as Partnerships, Web3 Compliance Enters a New Phase

On November 19, 2024, a ruling by the Federal Court for the Northern District of California sparked widespread discussion in the Web3 industry regarding the legal status of decentralized autonomous organizations (DAOs). The court determined that a certain DAO should be regarded as a general partnership, a ruling that not only denied the organization's claim that its decentralized structure could exempt it from legal liabilities but also has far-reaching implications for the compliance development of the entire Web3 industry.

Decentralization does not equate to exemption

The core viewpoint of the court's ruling is that although the DAO claims to be decentralized, its operational characteristics align with those of a general partnership. Under California law, the formation of a partnership does not require a formal registration process; it is sufficient for there to be a common interest driving the collaboration and corresponding cooperative actions. The court believes that the governance structure of the DAO and the recognizability of its members' roles make it fit the legal definition of a partnership.

This ruling provides important reference for the positioning of "decentralization" within the legal framework. Many DAOs attempt to evade traditional corporate law and partnership liability through decentralized structures, claiming that they are not formal legal entities and that there is no legal joint liability among participants. However, this judgment clearly indicates that decentralized organizational models cannot simply become tools for evading legal responsibilities.

Legal Risks Faced by Participants

According to the court ruling, several well-known investment institutions have been recognized 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 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 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 ruling may prompt DAO members to reconsider the consequences of participating in governance; even simple actions such as posting on community forums or voting could be seen as "active participation," thus entangling them in complex legal disputes.

Challenges and Opportunities in Decentralized Governance

This ruling undoubtedly impacts the decentralized governance of the entire Web3 space. A well-known legal expert in the industry believes that the court's decision "deals a significant blow to decentralized governance," as it implies that even minor participation in governance could lead to substantial legal liabilities. For developers and investors in Web3 projects, this undoubtedly increases operational and legal risks.

However, such challenges may also serve as an opportunity to promote transformation within the industry. In terms of design and operation, how DAO finds the best balance between decentralization and Compliance is a key issue that various projects must face moving forward. This means that decentralized autonomous organizations may need to gradually adopt a hybrid governance structure in the future, or reconsider their legal form, possibly choosing to register as a limited liability company or other forms of legal entities to limit the liability risks of participants.

Long-term Impact and Development Direction for the Industry

This ruling may just be the beginning of a wave of future regulations. As Web3 technology gradually permeates various fields such as finance, gaming, and social networking, traditional regulatory agencies will also gradually strengthen their attention 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 DAO, one possible future direction may be to introduce "legal packaging," which means providing legal exemptions for participants by registering legal entities beneath the surface of decentralization. This can meet the innovative needs 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 counsel 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 critical issues that relate to the survival and death of the project.