Commentary-4
As the objective of the Model Law is to bridge the technical and legal gap between the multiple existing and potential activities of DAOs and traditional regulatory frameworks that have yet to adapt to the new social organizations enabled by permissionless participation, the Model Law applies only to DAOs operating on Permissionless Blockchains. Permissionless Blockchains enable a multiplicity of participants to coordinate on a decentralized basis, in which control of the DAO is established among various actors via a Token-based system, and such permissionless participation is the foundational basis of DAOs. These emergent forms of social and economic coordination require updates to traditional corporate legal frameworks to apply public policy mechanisms in a manner that takes technical realities into account. New political and legal economies that can be gained from the technical functionalities afforded by DAOs require this kind of cautious and effective adaptation of corporate law frameworks to DAOs.
Permissionless Blockchains can be distinguished from permissioned blockchains, in which blockchain software is deployed by a narrow subset of pre-defined actors by a series of predefined accounts and can therefore be considered centrally controlled and coordinated. Permissioned blockchains are more akin to a traditional private corporation or foundation in terms of having centralized governance,, and, as such, applications on permissioned blockchains do not require new legal frameworks to operate.
DAOs deployed on Permissionless Blockchains raise the possibility of interacting with persons and entities one does not know. In the late 1770s, in writing about penal law, Bentham posed the question: "Who are you, with whom I have to deal?"[^16] This question strikes at the heart of the problem of being able to accurately and truthfully identify a stranger. At the time, the lack of standardization of proper names provided numerous opportunities to deceive counterparties. As Fichte noted soon after, this lack of identifiability compromised policing.[^17] While both had the identifiability of natural persons in mind,[^18] the need to know who one is dealing with is also essential for legal persons.
In a majority of jurisdictions, this identifiability requirement is met by giving a company a unique name that distinguishes it from other companies, a unique identification number and a registered office address, which can be used to find the company in a business register. A search of such a business register usually provides the name of at least one of the directors of said company. Through the formation requirements mentioned in this Article 4, we strive for regulatory equivalence by meeting this identifiability objective, while also acknowledging the unique properties of DAOs and the implicit goal of DAOs to conduct transactions digitally and maintain the pseudonymity of Administrators, Members and Participants.
An example of this is Article 4(1)(b), which requires the specification of a Public Address. Any DAO has---by technical requirement---at least one unique Public Address. The Public Address usually reveals the blockchain the DAO is based on, although this is not so in the case of a Hard Fork. The public policy goal requiring a company to have a name to distinguish one company from another is met by the identification of a Public Address of a DAO, which may be considered its default name in the absence of a unique name communicated by Public Signaling. This Public Address is communicated publicly as part of the requirement in Article 4(1)(c) to have the whole software code of the DAO published in Open Source Format.
As mentioned above, in most jurisdictions, a legal person must have a physical, registered address. While there are varied policy goals behind this requirement, we consider (1) the need of stakeholders and third parties (e.g., a national legal system) to communicate with a legal entity; and (2) the need to determine its lex societatis (i.e., the national law that governs the entity), to be the two most important reasons for having a physical, registered address. In general, a physical, registered address---even if limited to a mailbox---is important due to the need for Persons or the legal system to serve legal documents. While service of documents by e-mail or fax is already possible in several jurisdictions for civil proceedings (e.g., England & Wales),[^19] it is not universally the case (e.g., in the Netherlands).[^20]
A jurisdiction that adopts the Model Law should also permit the electronic service of legal documents by any communication mechanism publicly specified by a DAO (Article 4(1)(i)), such as a secure website which the authorities of a jurisdiction can post notice to and from which it can receive cryptographically signed acknowledgement. Courts in both India and the United Kingdom have recently indicated support for novel electronic means of serving legal documents, so long as the intended recipient can be correctly identified and there is an indication that they have been served (e.g., a "blue double tick" on Whatsapp).[^21] In the case of DAO Administrators or Members, identification would usually be enabled by their public address on the blockchain, not their name. For the sake of transparency and to avoid the maintainer of the communication mechanism being held inadvertently and individually responsible for the actions of a DAO, this publicly specified communication mechanism should be accessible by any Member of the DAO. At the same time, this communication mechanism should not permit a Member or Administrator to unilaterally delete or amend communications.
The second policy goal of determining the laws and procedures that govern a DAO is met by specifying a Dispute Resolution Mechanism for disputes arising among Members (Article 4(1)(j)) and for disputes with third parties that can be subject to alternative dispute resolution mechanisms (Article 4(1)(k)). In other words, we consider that compliance by the DAO's software code with Article 4 of the Model Law satisfies the policy goals behind the traditional requirement of having a seat. Instead of requiring a DAO to submit to and physically establish a presence in every jurisdiction in which they operate, the Dispute Resolution Mechanism gives Members and other stakeholders means of redress against the DAO, should the need arise. Dispute Resolution Mechanisms with non-member third parties do not have to meet minimum standards of due process for the time being, as no on-chain ADR process currently meets such standards and is unlikely to do so in the foreseeable future. However, third parties who enter into agreements with DAOs should be informed upfront about the Dispute Resolution Mechanism the DAO has opted into and that it may not meet the standards of due process that they might expect in an Off-Chain dispute resolution process, such as court litigation. This gives the third party prior notice and option to avoid transactions with the DAO and, if they choose to enter into such transactions, they do so on the basis of 'participant beware'. However, at a minimum, any final decision or settlement resulting from the Dispute Resolution Mechanism must be made public, after anonymizing the names and other personally identifiable information of the disputing parties, where relevant. Jurisdictions should recognise any final decision reached by the Dispute Resolution Mechanism. For matters that cannot be resolved by an ADR or binding arbitration procedure, a Legal Representative will be appointed (Articles 3(15), 14) to represent the interests of a DAO as a legal entity.
In many jurisdictions, the promoters assisting in the incorporation of a limited liability company must set authorized, subscribed and paid-in capital, along with the number of shares to be issued, the different classes of shares, their par value, and the terms and conditions on which the payment for their subscription will be made. We consider the overarching policy goal of this requirement to be ensuring that an entity has sufficient capital to meet its debts to creditors and to provide a structure for capital investments and tradability of shares. In the case of DAOs, the policy goal is automatically met by its technical reality: the funding situation, governance and any Token issuance may be read by anyone from the Permissionless Blockchain (Article 4(1)(a)). However, as only a minority of experts are able to reliably and accurately read the information from a blockchain directly, only DAOs that have a minimum of one publicly available GUI (Article 4(1)(e)) and have completed software Quality Assurance (Article 4(1)(d)) will be able to benefit from protection under the Model Law.
Similarly, a limited liability company is typically required to have a statute or constitution, often known as the Articles of Association or By-Laws, sometimes supplemented by or encompassed in an Operating Agreement or Membership Agreement, which include rules for the management of the affairs of the company, including its administrators and its representatives in relation to third parties, along with the names and powers of any such persons or entity(ies). A DAO's By-Laws are by default laid down in its software code. However, as only a minority of experts are able to reliably read the DAO's code, only DAOs providing for a one-to-one version of the rules in plain language on a GUI (Article 4(1)(f)) and a governance system with at least one Member (Article 4(1)(h)) will be able to benefit from protection under the Model Law.