The Law Commission of England and Wales has launched a call for evidence asking participants and experts for information regarding the characterisation of decentralised autonomous organisations (DAOs). This process will involve a 15-month scoping study aimed at investigating the current treatment of DAOs under the laws of England and Wales, and to identify how they should be treated in the future. This scoping study will also explore certain areas in need of further consideration and potential law reform.
DAOs are a type of technology-mediated organisational structure involving multiple participants - usually relying on blockchain systems and smart contracts. Most DAOs will focus heavily on the development of code that is then used to create smart contracts and corresponding protocols. It is for these reasons that they play a pivotal role in the context of crypto assets and decentralised finance ecosystems.
The Law Commission aims at framing a discussion around the composite elements of DAOs, whilst also examining how they are able to apply existing legal principles to these collective organisational structures. DAOs operate on a wide spectrum. The Law Commission will seek to identify different ‘types’ and ‘classes’ of DAOs depending on how its particular organisational arrangements are structured.
In their call for evidence, the Law Commission has asked for information on a variety of issues in order to increase their understanding of the current DAO landscape. These issues include the following:
- A general view as to when a DAO would decide to include an incorporated legal entity into its structure and the characteristics of this relationship.
- The governance structures that exist within DAOs.
- The use of crypto-tokens and smart contracts as practical and legal tools within these structures.
- The duties of care and/or fiduciary duties that apply to developers of open-source software protocols – developer liability.
- Whether or not a smart contract, in itself, should be treated as having a legal personality.
- The regulatory oversight and corporate reporting expected of DAOs, including AML and tax liability considerations.
- The status of investors and token holders.
- The legal forms used by DAOs in other jurisdictions.
We are currently in the midst of the first legal case involving a DAO; The U.S Commodity Futures Trading Commission (CFTC) sued the Ooki DAO for allegedly violating federal commodities laws by illegally offering leveraged and margin crypto trading products to U.S investors. It will be fascinating to learn whether or not this case will have any influence on the Law Commission’s scoping study.
The call for evidence paper will remain open until 25 January 2023.
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