EMERGING TECH & LAWYERS
Is DAO the New Form of a Corporation? by Angelina Gomez, counsel at Clifford Chance; Co-founder and director of the Digital Law Association
Introduction The Hon T F Bathurst, former Chief Justice of New South Wales, in a speech to the Francis Forbes Society noted that the “…corporate form is a ubiquitous part of modern commercial life and has a significance to our economy which it is difficult to overstate” with its “separate legal personality, perpetual existence, transferable shares and limited liability for members”.1 However, regardless of its ubiquity, with the emergence and adoption of blockchain and smart contracts in modern commercial life, we seem to be moving with some speed towards a decentralised future, and away from the hierarchical structures of corporations, with its board of directors and shareholders. This acceleration is mostly due to the fact that decentralisation encourages participation and transparency. This can be clearly seen in the 2020 rise of decentralised finance (DeFi), which has rekindled interest in Decentralised Autonomous Organisations (DAOs), as being the appropriate vehicle to take advantage of DeFi, to engage in digital transactions and the endless possibilities for its members to act with common
purpose, for example, to invest, fundraise and to collect NFTs and other assets. The crypto community is predicting that DAOs will become the “next big trend”.2 ASIC Chair, Joe Longo at the Australian Financial Review’s Super & Wealth Summit in November 2021, admitted “to a certain fascination with DAOs”, and raised the following questions: What are they? What do they do? How can DAOs be regulated? … To paraphrase a concept familiar to corporate lawyers, to whom does ASIC turn to ascertain the directing mind and will of a DAO? It is not clear who is accountable if things go wrong, or don’t go as intended or anticipated. Nor is it clear how a DAO itself can be held accountable in a court of law.3 So what is a DAO? The building blocks of DAOs are blockchains4 and smart contracts,5 and they work together to effect the decisions of the members of a DAO. Are DAOs the new corporate paradigm? This article will examine the characteristics of most DAOs (bearing in mind that DAOs are not homogenous), the legal issues they raise and possible solutions.
What is a DAO and how does it work? DAOs are organisations that operate on decentralised blockchain infrastructure, essentially, they are exclusively ‘online’, generally using open source code to carry out their operations. While DAOs can come in all shapes, sizes and protocol, a DAO is essentially a group of people who have agreed to achieve a common goal or mission, from the purchasing of digital assets to building a media empire. Each DAO has its own system of governance but a common feature is that it is not managed by a board or any other form of central authority. Instead, it is a democratised organisation and its governance is based on a community of members. DAOs operate on a flattened hierarchy, and decisions are made collectively by their members. A DAO’s members comprise a group of, for the most part, anonymous people/entities, located anywhere in the world, who may never have met (and may never meet) one another in real life, who agree to abide by certain rules to participate in the DAO.
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