MODEL LAW FOR DECENTRALIZED AUTONOMOUS ORGANIZATIONS (DAOs)
Note:
This is an incomplete work in progress. It is called Version 1.0.1, but actually: has all the content of the original version, and this website isn't yet ready for public consumption. last update 2024-03-26.
What's follow is the porting from the Dao Model Law of COALA to a more maintable version. as the homepage suggest, this is a work in progress.
Contributors (in alphabetical order)
Constance Choi, Primavera De Filippi, Rick Dudley, Silke Noa Elrifai, Fatemeh Fannizadeh, Florence Guillaume, Andrea Leiter, Morshed Mannan, Greg McMullen, Sven Riva, Ori Shimony
Originally written by the Coalition of Autmated Legal Application (COALA), 2019-2021, since March 2024 it is maintain on github (by ?) to invite update, contributions and expansions. Check the Version History.
You can also download the latest produced version (1.0.1) of this website as PDF, with the full commentary, or without: DAO Model Law version 1.0.1.
Executive Summary
New models of blockchain-based organizations, often referred to as Decentralized Autonomous Organizations (DAOs), face significant legal uncertainty that can be detrimental to their development and utilization. This Model Law (ML) aims to create uniformity and legal certainty, while, unlike other regulatory frameworks for DAOs, still accommodating flexibility for further innovation by not imposing formal registration requirements.
The drafters and contributors to the ML have sought to consciously address the vertical (principal-agent), horizontal (majority-minority principals) and firm-stakeholder agency problems that can be seen in corporate entity forms irrespective of jurisdiction, while still being sensitive to, and retaining, the particular features of DAOs and crypto-economic systems that make these forms of organization and coordination unique and valuable as emergent social and commercial vehicles. States are encouraged to adopt or transpose the ML's provisions into their domestic law. In a State that has transposed or adopted the ML into their domestic legal system, a DAO that is constituted according to the requirements of the transposed or adopted legal rules will qualify and be recognized as a legal entity by that State. This will result in the DAO being granted legal personality in any State that has adopted or transposed the ML, which is essential to guarantee the legal effect of the DAO's action. If the ML's provisions are complied with, the DAO's Members will additionally enjoy limited liability. To allow for DAOs to qualify as legal entities in the maximum number of States, the ML provides a minimum level of rights, duties and protections that are generally recognized in legislation on analogous corporate entities in major jurisdictions. In addition, if a DAO qualifies as a legal entity in a particular jurisdiction, the legal effects of its actions and the protections offered to its Members, Participants, Legal Representatives and Administrators may be more easily recognized in other jurisdictions that have not adopted or transposed the ML under private international law principles.
As many unregistered DAOs will fail to comply with existing corporate rules by nature of their intrinsic operation, and will not be able to implement all of the necessary legal requirements formally articulated in existing corporate rules, the ML strives to achieve functional and regulatory equivalence through specific provisions of the ML. Functional equivalence allows the establishment of equivalence between an object already within the realm of a legal rule and another object not yet encompassed by it. For instance, the UNCITRAL Model Law for Electronic Commerce establishes functional equivalence between a paper-based document and an electronic document. As this Model Law demonstrates, this approach is useful for simplifying the regulation of DAOs. For example, instead of introducing new corporate rules specifically applicable to 'tokenized' shares, shares that are recorded on a blockchain-based system could be regarded as valid titles to a share, transferable via a blockchain-based registry. Regulatory equivalence relies on the same technique, but identifies the object or purpose of any given regulation as goal. It allows for the establishment of equivalence between the function of a legal rule and the function of a technology. A pertinent example of regulatory equivalence is the relationship between registration requirements for corporate entities and the deployment of a DAO on a Permissionless Blockchain. The deployment of a smart contract on a blockchain with relevant data about a DAO is not functionally equivalent to registration into a corporate registry, but the policy objectives of publicity and certainty are fully achieved. Following a public announcement of the Public Address of the DAO, the deployment is verifiable by anyone, as it is inscribed on a Permissionless Blockchain.
In view of the above objectives, the ML consists of the following Chapters:
Chapter list
Chapter 1: General Provisions
Chapter 1 sets out the broad range of economic and social activities that DAOs can engage in, the rights and obligations that DAOs can enjoy as a separate legal person, and important definitions used in the ML.
Chapter 2: Formation and Proof of Existence
Chapter 2 sets out the eleven technical and governance requirements that a DAO needs to meet to benefit from legal personality, and for its Members to receive limited liability protection.
Chapter 3: Limited Liability, Asset Subscription and Members' Rights
Chapter 3 sets out the potential actions that may lead to Members forfeiting limited liability protection, namely fraud and failure to comply with binding arbitral awards or court orders. This is intended to limit the grounds on which a Member may be jointly liable with a DAO, while not precluding the possibility that a Member may be personally liable (e.g., under tort law principles). The chapter also clarifies that minimum capital requirements are not mandatory for DAOs, as is increasingly the case with traditional corporate entities, while still acknowledging that some DAOs may wish to voluntarily introduce reserve funds and insurance schemes to enhance public confidence in their ability to meet their debts to third party creditors. The remainder of the chapter is devoted to governance rights, providing considerable leeway to DAOs to create multiple classes of participation and diverse voting rights structures, as well as the possibility to protect minorities and appoint proxies.
Chapter 4: Internal Organization and Disclosure
Chapter 4 builds on the question of how a DAO under the ML is to be governed. It seeks to allow individual DAOs to have considerable flexibility in how their internal organization and procedures take place, without being bound by the same constraints that a number of corporate entities are subject to (e.g., in-person, physical meetings). The ML enables management by consensus as well as the appointment of Administrator(s). It recognizes that, irrespective of how the DAO is managed, the DAO may need to have representation off-chain for certain purposes and activities. This chapter therefore provides a procedure for appointing a Legal Representative with narrowly-defined powers that can interact with territorially bound national jurisdictions. In the spirit of contractual freedom, DAOs are permitted to appoint fiduciaries if they wish, but the ML makes clear that merely holding a position with a particular title and having certain potentially discretionary decision-making power (e.g., core Developer, Administrator, Member) should not be in itself sufficient to imply fiduciary status.
Chapter 5: DAO specific provisions
The provisions of Chapters 1-4 are akin to most corporate law statutes and address the aspects of DAOs that are similar to other business organizations. Chapter 5, in contrast, recognizes that DAOs have technical features that raise new questions that merit specific treatment. This Chapter, therefore, includes specific articles that concern the consequences of Contentious Forks, modifications, upgrades and migrations on the legal personality of a DAO (as well as its claims and assets) and the limited liability of its Members. Moreover, there may be Failure Events that are specific to DAOs, which under this chapter may lead to the liability of Persons who are grossly negligent or acting in manifest bad faith in making a decision, but will not attach to those not involved in the decision.
Chapter 6: Miscellaneous Provisions
Chapter 6 is the final part of the ML and includes two important miscellaneous p rovisions that are necessary in creating a coherently complete legal framework f or DAOs. First, it specifies when general business organization law should be ap plied to DAOs by a jurisdiction that adopts the ML. Only lacunae in the by-laws and the ML should be filled by domestic general business organization law, and i f there is any ambiguity arising from this gap-filling function, it should be re solved in a manner that upholds the objectives and letter of the ML. Second, it establishes the recognition of DAOs as pass-through entities for tax purposes, s o as to simplify the process of taxation for DAOs which are non-territorial and transnational by their nature, and instead make Members and Participants respons ible for tax compliance.