Bancor DAO Default Raises Legal Red Flags

In a first-of-its-kind legal ruling, a U.S. court has entered a default judgment against Bancor DAO after the decentralized organization failed to respond to a lawsuit involving frozen user assets. The case opens the door to a novel legal question: Can DAOs—unincorporated and anonymous—be held liable under traditional legal frameworks?

The lawsuit was brought by a group of investors who claim their assets were locked or lost due to changes in the Bancor protocol’s smart contract functionality. When they attempted to recover their funds, they were met with silence. Bancor’s core developers, who are publicly known, argued that the DAO, not they, was responsible.

The court disagreed. Because the DAO failed to respond, the judge entered a default judgment, effectively ruling in favor of the plaintiffs. More importantly, the judge allowed claims to proceed against the individuals behind the protocol, citing their public association with the DAO and their active role in promoting it.

This decision could transform how DAOs operate. Traditionally seen as autonomous collectives without legal personhood, DAOs have existed in a legal gray area. This case suggests that courts may treat them as unregistered associations or partnerships—structures that carry real legal liability.

Legal experts are now advising DAO participants to reassess their exposure. Developers, token holders, and contributors who play active roles in DAO governance may now face legal claims, especially if courts determine they acted as de facto agents of an unregistered entity.

This case also calls into question the limits of decentralization. If a DAO can be sued and lose by default, then it must consider establishing legal wrappers, adopting compliance procedures, and possibly even incorporating under jurisdictional safe harbors like Wyoming’s DAO LLC framework.

The Bancor case is not over. The default judgment allows appeals to proceed, and it may prompt other lawsuits from similarly affected users. But the damage is done: DAOs are now on notice. Courts will not allow structureless governance to be used as a shield against accountability.