I bought tokens in a DAO (Decentralized Autonomous Organization) and voted on a governance proposal to invest in a protocol. That protocol turned out to be illegal. The CFTC sued the DAO. Since the DAO wasn’t an LLC, they sued the voting members individually. I got a subpoena.
Key Takeaways
- The Ooki DAO Precedent: US Courts have ruled that a DAO can be treated as an “Unincorporated General Partnership.”
- Joint and Several Liability: In a general partnership, every partner is liable for the entire debt of the organization. If the DAO is fined $10M, they can come after you personally for the full $10M, even if you only held $100 in tokens.
- Voting = Managing: The liability often attaches to those who voted. If you just held the token but didn’t vote, you might be safe (passive investor). If you voted, you are a “General Partner.”
- Personal Umbrella Limits: Your personal umbrella policy usually excludes “Business Pursuits.” Running a DAO is arguably a business.
The “Why” (The Trap)
The trap is “Decentralization Theatre.”
You thought the DAO was a code entity. The law sees it as a group of people doing business. Without a legal wrapper (like an LLC or Foundation), there is no “Corporate Veil” protecting your personal assets (house, car) from the DAO’s lawsuits.
The Investigation (I Consulted Lawyers/Insurers)
I asked about D&O (Directors & Officers) insurance for DAOs.
DAO Insurance (Rare)
- Offerings: Some specialized wrappers (like in the Cayman Islands or Switzerland) offer D&O insurance for the DAO council.
- My Analysis: Extremely expensive and rare. Most DAOs are uninsured.
Personal Liability
- State Farm Umbrella: “We exclude liability arising from business activities or professional services.”
- Defense: You would have to argue your voting was a “hobby.”
Comparison Table
| Role | Liability Risk | Insurance Availability |
| Passive Token Holder | Low | N/A |
| Voter (Governance) | High (General Partner) | Very Low |
| DAO Multisig Signer | Extreme | D&O (Specialty) |
Step-by-Step Action Plan
- Check the Legal Wrapper: Before voting, check if the DAO has a legal entity (e.g., a Wyoming DAO LLC or Cayman Foundation). If yes, you have some protection. If no, you are exposed.
- Don’t Vote on Risky Proposals: If the proposal is “Launch an unregistered exchange,” do not vote. Voting creates the paper trail of your involvement.
- Doxxing Risk: If you vote from a wallet linked to your KYC’d identity (ENS name), you are an easy target for regulators.
- Wrap Your Membership: Create your own LLC to hold the DAO tokens. That way, if they sue, they sue your LLC (which has limited assets), not you personally.
FAQ
Can I be sued if I voted ‘No’?
Potentially yes, as you participated in the management. But voting ‘No’ is a better defense than voting ‘Yes’.
Is this only in the US?
Mostly, but other jurisdictions are watching closely.