Legal Uncertainty and DAOs in the Digital Economy

Abstract

Despite their potential benefits for advancing organizational models of the digital economy, a significant challenge for the adoption of Decentralized Autonomous Organizations (DAOs) are the existing legal uncertainties that result in significant risks for their operators. In particular, there are three main areas of legal uncertainty that complicate the operation of such organizations: their treatment under company and partnership law, questions around the legal nature of smart contract technology, and the treatment of these organizations’ novel form of governance by securities law. In this chapter, we analyze these fundamental legal challenges to the wide-spread adoption of commercial DAOs, and argue that they lead to the conclusion that as a novel form of economic organization, DAOs are not capable of being meaningfully developed by simple analogy to the existing legal frameworks. This in turn raises the fundamental conclusion that either the DAO model as such, the law, or both need to be adapted and evolved in order to facilitate these organizations’ thriving in the economy. As we lay out in this chapter, if DAOs are indeed found to become of major benefit to the way economies are organized, the law must follow suit to market innovation by creating innovative novel legal structures that are capable of responding to these economic needs and realities. The studies of emerging legal framework that follow give a first glance of the direction which such emerging legal frameworks could take.