Over the last couple of years, the Law Commission for England and Wales has successfully launched several law reform projects related to digital assets, smart contracts, and electronic trade documents. With the UK’s target of becoming a tech leader, yesterday, on 16 November 2022, the Commission published a public call for evidence to be delivered by stakeholders on the characterisation and legal regulation of decentralised autonomous organisations (DAOs) – emerging organisational entities.
A DAO, a concept first developed in 2016, is a legal structure without any central governing body that enables the members with a common target to manage the entire entity on the basis of blockchain technology, smart contracts, software systems, and the Ethereum network. As automated and decentralised bodies functioning without human intervention, DAOs serve for transparency and efficiency. Indeed, the use of DAOs is dramatically expanding in today’s financial markets, banking, and corporate governance. With this increasing significance and progressive application amidst to inevitable practical uncertainties and ambiguities, it is getting a more crucial task than ever to seriously ponder upon their operation under the existing legal systems. That is the precise target of the Government asking the Commission to investigate what exactly constitutes a DAO and what are encompassed by their structure.
The Commission has drafted the following questions encouraging everybody with relevant expertise to respond, but not necessarily to all of them:
- “When would a DAO choose to include an incorporated entity into its structure?
- What is the status of a DAO’s investors / token-holders?
- What kind of liability do or should developers of open-source code have (if any)?
- How does / should the distinction between an incorporated company (or other legal form or incorporated entity) involved in software development and an open-source smart contract-based software protocol operate as a matter of law?
- How do DAOs structure their governance and decision-making processes?
- How do money laundering, corporate reporting and other regulatory concepts apply to DAOs, and who is liable for taxes if the DAO makes a profit?
- Which jurisdictions are currently attractive for DAOs and why?”
The Law Commission aims at reaching a final report which will define the relevant issues under the existing laws of England and Wales as well as determine the potential for further legal reforms.
The call for evidence will last for 10 weeks from 16 November 2022 with the closing date of 25 January 2023. Further details of the project are available at Decentralised Autonomous Organisations (DAOs) | Law Commission.