Today's Law Commission paper on DAOs explained
THE Law Commission has released a significant paper on decentralised autonomous organisations (DAOs) - a crucial milestone in the legal landscape of DAOs under English and Welsh law.
Key discussion points...
1. DAOs are internet-based collaborative organisations that use blockchain technology and smart contracts to coordinate activities and resources.
2. The paper explains DAOs and how they might be categorised legally and identifies options for legal reforms to clarify their status in England and Wales.
3. Key features of DAOs include:
- Use of smart contracts and distributed ledger technology (DLT)
- Decentralized decision-making through token-based governance
- Transparency in operations
- Potential for anonymity or pseudonymity of participants
4. The document outlines three broad types of DAOs:
- Pure DAOs: Rely solely on technology without formal legal structures
- Hybrid arrangements: Combine smart contract coordination with legal entities
- Digital legal entities: Incorporated entities using DLT in governance/operations
5. Legal challenges for DAOs include:
- Determining liability
- Capacity to enter contracts and own property
- Regulatory compliance and taxation
- Jurisdiction and extra-territoriality issues
6. The paper suggests that pure DAOs could potentially be characterised as general partnerships, unincorporated associations, or involve contractual relationships between participants.
7. For hybrid arrangements, key considerations include choosing appropriate legal entities and jurisdictions.
8. The Law Commission does not recommend creating a DAO-specific legal entity for England and Wales at this time.
9. Suggested next steps include:
- Reviewing company law to facilitate the use of DLT in governance
- Considering the introduction of new flexible legal structures
- Reviewing anti-money laundering regulations to ensure compatibility with DLT
The document aims to provide an introduction to DAOs and their legal implications, highlighting areas for potential future legal reforms or innovations in England and Wales.
Link to the papers: https://lawcom.gov.uk/law-commission-publishes-scoping-paper-on-decentralised-autonomous-organisations/
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