A Study on the Legal Regulation of Decentralized Autonomous Organizations (DAO)

Abstract

Decentralized Autonomous Organizations (DAOs), based on blockchain technology, are organizations that operate autonomously according to agreements made among members rather than through a centralized authority. Utilizing blockchain’s attributes of decentralization and cryptography, DAOs embody decentralization, autonomy, and transparency, establishing themselves as a distinctive governance model. However, despite the increasing prevalence of DAOs globally, their legal nature remains ambiguous, leading to unclear legal relationships and insufficient protection for participants and third parties. In 2021, Wyoming proactively established the Wyoming Decentralized Autonomous Organization Supplement, creating a foundational legal framework for the formation, operation, and dissolution of DAOs. Wyoming recognizes DAOs as a special form of LLC. However, considering the various types of DAOs in operation, legislation that reflects each organization's characteristics, rather than prescribing a single legal status, is needed. Furthermore, this study reviews elements within Wyoming’s regulations that may conflict with DAOs’ core values of decentralization and anonymity, highlighting areas requiring caution in the legislative process. Finally, to address the technical risks and potential centralization tendencies within DAOs, this paper suggests imposing a high duty of care on key developers, introducing clauses to exclude indemnification for core members, and formalizing dispute resolution procedures in advance.