Legal Challenges Facing the Web3 Industry: The Legal Positioning of Decentralized Autonomous Organizations Sparks Controversy

Recently, the U.S. District Court for the Northern District of California made a notable ruling in a case involving the Decentralized Autonomous Organization (DAO). The court determined that a certain DAO should be considered a general partnership, a ruling that negates the organization's claim that its decentralized structure could avoid legal liability, and it also brings far-reaching implications for the compliance development of the entire Web3 industry.

Decentralization does not equal lack of responsibility

The court pointed out in its ruling that although the DAO is named in the interest of Decentralization, its operational characteristics align with those of a general partnership. According to California law, the formation of a partnership does not require a formal registration process, as long as there is a common interest driving collaboration. The court found that the governance structure of the DAO and the recognizability of member roles make it fit the legal definition of a partnership.

This ruling sets a precedent for how "Decentralization" can be positioned within the legal framework. Many DAOs attempt to evade traditional corporate law and partnership liabilities through a decentralized structure, 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 serve as a tool to evade legal responsibilities.

Main participants face legal risks

According to the court's ruling, several institutions have been recognized as "partners" of the DAO, because these institutions actively participated in the governance and proposal voting of the DAO. The court determined that these institutions, which hold tokens and actively participate in governance, have transcended the status of mere investors and have become co-operators of a partnership, thus 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 reconsider the consequences of participating in governance — even simple actions such as posting on community forums or participating in votes may be seen as "active participation," thus entangling them in complex legal disputes.

Challenges and Opportunities in Decentralization Governance

This ruling undoubtedly impacts the decentralization governance of the entire Web3 field. Industry insiders believe that the court's decision "deals a huge blow to decentralized governance," as it means that even minimal participation in governance could lead to significant legal liability. For developers and investors of Web3 projects, this undoubtedly increases operational and legal risks.

However, such challenges may also serve as an opportunity to promote changes within the industry. The key issue that various projects must face in the future 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 a hybrid governance structure or reconsider their legal form, 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 permeates various fields such as finance, gaming, and social media, traditional regulatory bodies' attention and control over Decentralized Autonomous Organizations will also gradually strengthen. 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.

One possible future direction for DAOs may be to introduce "legal wrapping", which means providing legal immunity for participants by registering legal entities beneath the surface of decentralization. This can meet the innovative needs of decentralization while reducing legal risks. The future of Web3 may not solely pursue complete decentralization but rather pragmatically find a middle ground.

The fast-paced era requires more flexible legal solutions. Future DAOs 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 key issues that relate to the survival and death of the project.