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Commentary-16

Blockchains can undergo Hard Forks, as defined in Article 3(11). Multiple blockchain forks can coexist and the decision concerning which fork to use is a consensus-driven process that must be achieved without a definitive source of authority making the decision for Members and Participants. Ultimately, individual Members and Participants can decide which fork to subscribe to.

This presents difficulties for interfacing with persons and entities outside of the given blockchain, which expect one authoritative counterparty for their dealings. Hard Forks could cause confusion because they create multiple possible counterparties, where different instantiations of the DAO reside on different chains. This is not an issue for On-chain Assets, because they will be replicated on both forks, and therefore can be managed and disposed of on the respective chains. However, with Off-Chain Assets, which are scarce, third parties (e.g., governments, property registers, custodians, brokers, potentially insolvency professionals) interfacing with the DAO need to have one definitive counterparty that is recognized as having legal ownership of Off-Chain Assets and liabilities, as well as identified Legal Representatives for that counterparty. For example, if two DAOs replicated on competing forks were both to make a claim on the same piece of real property, it can be difficult to ascertain which of the two has a genuine and legitimate claim over this property. This Model Law makes the Majority Chain the default choice, since Minority Chains without significant support are typically not considered to be authoritative representatives of the view of the community of the DAO.

Usually, the Majority Chain can be fairly and quickly identified immediately after the Hard Fork. However, in the case of Contentious Forks, it is possible that the Majority Chain may not be immediately determined from the moment of the Hard Fork. Caution should be exercised in this transition period. If the Majority Chain is not obvious after the Fork, the following factors may be taken into account in order to determine which fork should be regarded as the authoritative Majority Chain:

  • Security: The blockchain with the greatest hashing power in the

    case of a proof of work, or with the highest amount of deposits in the case of a proof of stake.

  • Applications, Services and Service Providers: The blockchain that

    is recognized and accepted by a majority of ancillary services and service providers (e.g, trading protocols, exchanges, wallet providers, oracles, data gateways), tokens and applications.

  • Market Capitalization: The blockchain whose Token is the most

    valued by the market.

  • Community Recognition: the blockchain recognized by the majority

    of developers, thought leaders, end users and other Members and Participants.

  • Trademark: the blockchain that is formally recognized by the

    entity holding the trademark (e.g., the Ethereum Foundation holds the Ethereum trademark).