The regulation of DAOs from a German perspective

Abstract

Unwrapped DAOs with token-based governance are deemed a civil law partnership in Germany. Token holders have full personal liability as partners. To limit their liability while keeping democratic and decentralized governance control and receiving support as members, participants should consider incorporating their DAO as a European Cooperative. This more flexible European form, when compared to the ‘Genossenschaft’, shows that a ‘DAO limited’ incorporated in Germany would face supranational and international competition. Without the ‘Delaware-effect’ of a well-developed service infrastructure, including legal advice and established case law, a new form will only attract early adopters. Meanwhile, corporate practice will develop hybrids to combine affordances offered by existing legal forms. Further digitalization of registration and governance processes, along with the digitization of required information, may better serve DAOs compared with innovation of legal forms. Progress could also come through sectoral reforms at the European level, specifically in data governance and decentralized finance regulation.