Blockchain-based businesses are a natural global extension of platform businesses. Blockchain-based smart contracts can standardize business processes and enable autonomous organizations. Decentralized autonomous organizations (DAOs) instantiate the need for truly global borderless entities that coordinate agency relationships and limit liabilities via smart contracts. Given the global nature of commerce through internet-based platform businesses and borderless payment systems, among many others, the global promise of the concept of a DAO as a business vehicle is only truly fulfilled if DAOs can be set up via the internet and are jurisdictionally recognized.
DAOs have the potential to upgrade business and society on multiple levels. The business applications of DAOs are near limitless. For example, most of the applications and uses of digital currencies are improved and expanded with well-functioning and well-governed DAOs. DAOs help upgrade digital assets across the spectrum of applications and uses. This includes digital assets that can be used as mediums of exchange, speculation,[1] payment rail for non-expensive cross-borders money transfer, and non-monetary uses such as time stamping.[2] Additional use cases of DAOs include financial transactions, secure voting, autonomous organizations, company management, freedom of speech networks, online games, crowdfunding, and speculation, among many other possible applications that cannot be foreseen at the time of publication of this article.[3]
DAOs are organizations that run through rules encoded in smart contracts.[4] DAO smart contracts are executed when the conditions embedded in them are recognized as math by the network.[5] DAOs can be built on any smart contracting platform. In the 2020s, was still the leading smart contracting platform for DAO creation. Ethereum’s programming language, Solidity, enables the development of smart contracts[6] in conjunction with Ethereum’s Virtual Machine (EVM), upon which every Ethereum node runs to maintain consensus. EVM is Turing-complete, meaning that it can perform calculations that any other programmable computer is capable of, enabling execution of code exactly as intended.[7] This is the unique feature of the Ethereum network that enables smart contracts and a high level of flexibility in digital innovation, which makes the platform attractive to developers. Other networks are developing upgrades to blockchains that enhance smart contracting and associated DAO features.
A core problem in the evolution of DAOs is the applicable legal framework. The concept of a DAO fails if it becomes centralized. Tying the legal existence of a DAO to any forms of existing legal and jurisdictional frameworks typically results in the need for a representative in the chosen legal framework and jurisdiction, which, in turn, centralizes the DAO and results in the failure of the DAO concept. From the perspective of regulatory competition, one jurisdiction may one day offer a DAO legal framework that removes the need for a representative in that jurisdiction. However, even if this should exist one day, a significant risk remains that such DAO entity could be labeled a partnership with joint and several liability for its members in a given jurisdiction. Only a jurisdiction that gives the DAO limited liability as an entity and accepts its independent status without the need for representation may truly be favorable for DAO concepts. Such jurisdiction would have to accept that the DAO is a virtual organization based on code that is accessible from any computer with an internet connection and cannot be jurisdictionally captured. The implication is that such DAO on each computer in any country is effective if another computer in a given country connects with and interacts with the code.
DAO structures are evolving lockstep with applicable legal solutions. On the operational side, overcoming bugs that lead to security flaws is a crucial part of the DAO technology evolution. On the legal side, experimentation with different legal arrangements in disparate jurisdictions helps DAO communities innovate for the creation of consumer facing applications in different settings around the globe.
This article examines the existing attempts to establish DAO concepts and legal frameworks. The author evaluates the technical solutions and internal governance solutions promulgated by DAO projects. Particular emphasis is placed on the duality and feedback effects between internal DAO governance and external legal design. The article concludes with an examination of legal DAO frameworks and their existing limitations and potential for future development.
I. Decentralized Autonomous Organizations
DAOs are becoming increasingly popular.[8] Several global trends can help increase the popularity of DAOs: globalization of talent and transformation of the nature of work (including the units work is measured in); coordination for well-resourced stakeholder networks; emergence of decentralized finance; normalization of participation in governance; deplatforming; and an upswing in political/social organization.[9]
Three generations of DAOs can be observed during the evolution of the concept of DAOs.[10] The first generation of DAOs did not have any legal attachments or legal designs associated with it. That includes the original 2015 DAO. The second generation started to consider a legal wrapper on the DAO concept in order to enable it to engage more with the real world. The third generation of DAOs considered an actual association or organization that already has a legal construct with completed administrative paperwork. The DAO itself was then added to the existing legal construct. Most of the experimentation with DAO internal governance and external legal design is happening in that third generation of DAOs, which is the subject matter of this article.
1. History of DAOs
The concept of a DAO was mentioned in the literature as early as 2005.[11] More concrete technological attempts to build DAOs appeared in the early 2010s. For example, in 2013, Daniel Larimer, CTO of EOS, published an article to introduce a “new metaphor for explaining” cryptocurrencies — the first proposal of the concept that has become a DAO.[12] Larimer asked readers to think of a cryptocurrency as shares in a Decentralized Autonomous Corporation (“DAC”) where the source code defines the bylaws, with a goal to earn a profit for shareholders by performing valuable services for the free market.[13] The DAC pays for the services it requires to operate — transaction validation, security against double-spend attacks, viral marketing campaign, customer privacy, traffic filtering defense — with shares in the decentralized company.[14] Vitalik Buterin followed up this literature with three blog posts on the DAC concept.[15]
In 2014, Ethereum[16] was launched, creating two smart-contract addresses — 1) issuer functionality 2) membership-shareholder address side[17] — which was revolutionary because it allowed token issuers to connect with members (shareholders).[18] Every single aspect listed on the original 2014 version of the Ethereum website actually happened and was used in production today.[19] For example, Ethereum created a simple token that was not ERC 20 at the time.[20] The Ethereum website also listed “a decentralized company or organization that operates entirely on the blockchain”.[21] In November 2015, the Ethereum website described a democratic autonomous organization — “a robot running your organization is guaranteed to execute only what it was programmed to.”[22] Ethereum was originally launched as a foundation[23] in order to launch and have sufficient funds to further promote[24] and propose the genesis block to the community.[25] Yet, the system is cybernetic[26] because after it launched, the community had to decide which version of the protocol they would adopt and use.[27] The cybernetic system has a new kind of counterparty that does not currently exist.[28]
In August 2015, Dash, a fork of Bitcoin, added a DAO (pooling) element to its protocol — ten percent of the block rewards went into a pool to fund proposals to grow the Dash network/ecosystem.[29] Hundreds of proposals passed in this DAO, ranging from funding development efforts to marketing and community awareness efforts.[30]
In May 2016, the first DAO, “The DAO,” was launched on Ethereum, and became “The Mother of all DAOs” and the biggest crowdfunding happening of all time.[31] Despite several earlier attempts to technically implement a DAO, the first DAO launched in 2015 and was set up as an organization based purely on code and smart contracts. It did not have a conventional corporate structure, no incorporation, and had no physical address or headquarter. The DAO aimed to operate as a venture capital fund for the crypto and decentralized space.[32] Its code was open source developed by Slock.It[33] with a governance structure that was entirely on-chain, essentially removing all core control mechanisms typically employed by principals in agency relationships.[34]
The DAO unexpectedly became the biggest crowdfund ever and gathered 12.7M Ether (worth $150M at the time).[35] The DAO was never expected to have a lot of money, but ended up collecting more than $100 million and became the biggest crowdfunding campaign of all time.[36] During the DAO crowdfunding campaign in May 2016, all investors could become DAO participants by purchasing DAO Tokens. The DAO raised more than $168 million from approximately 10,000 “investors”.
The DAO was the founders’ attempt to set up a corporate-type organization without using a conventional corporate structure. The founders’ central idea was that the wisdom of the crowd would lead to smarter and more game-changing investment decisions. DAO Tokens were designed to be fully transferable and tradeable on “peer-to-peer” exchanges, similar to shares in a traditional listed corporation. The automated structure was intended to give “participants” in the DAO direct real-time control over contributed funds. Not in small part due to this great success, The DAO was expected to be at the center of many economies going forward.[37]
Alas, things went terribly wrong with the DAO. Fundamental flaws in the DAO code enabled hackers to transfer one-third of the total funds to a subsidiary account, which brought down the first DAO initiative.[38] Subsequently, The DAO tokens were found to be securities and therefore subject to federal securities regulations.[39] The silver lining of the story of The DAO is that it taught developers that “code is not law” — The DAO had a few technical shortcomings, but it effectively demonstrated that it is possible to use decentralized organizations living on a blockchain to manage funds contributed by a large number of people.[40] The DAO communities have proliferated in the aftermath of the original DAO hack and continue to innovate to create innovative consumer facing applications in different settings around the globe.[41]
In November 2016 Aragon, a DAO project focused on decentralized coordination and governance, was introduced.[42] The network provides infrastructure and services to platform users[43] who can create and manage organizations that exist as a set of smart contracts defining the organization’s stakeholders and their associated rights and privileges.[44] In November 2018, a DAO that serves as an online court (the Aragon Network) was launched, acting as a decentralized oracle protocol that resolves subjective disputes with binary outcomes.[45] Governance authority over dispute resolution is granted to token holders by way of an Aragon association, which handles operational decisions.[46] Aragon describes DAOs as an unincorporated entity in nature, but can manage funds and participate in the market in the way incorporated entities can.[47] As such, Aragon believes in DAOs as DAOs without a legal setup.[48]
In December 2017, MakerDAO was launched, created as a DAO to administer the running of its stablecoin Dai.[49] The Maker system creates a decentralized, open scientific risk management community, which was initially[50] guided by the Maker Foundation, but eventually will be led by risk teams formally elected by MKR vote, and contributions of independent volunteer risk researchers.[51] The Maker Protocol allows users to generate Dai by leveraging collateral assets approved by “Maker Governance,” the community-organized and operated process of managing the protocol.[52]
In February 2019 MolochDAO launched, designed to tackle collective action problems. Its design choices have been narrowly focused to coordinate charity grants for Ethereum projects.[53] The MolochDAO led to a set of “organizational primitives” — “simple smart contracts that enabled groups of people to pool assets, collectively vote, and direct assets to third parties.”[54] MolochDAO is entirely on-chain without a legal wrapper.[55]
2. Extending Business Opportunities
The evolving decentralization of business and society is an extension of the existing societal organization and human achievement. As organizational centralization reaches natural limitations, decentralized organizational elements become more prevalent. For example, internet-based platform businesses try to make organizational hierarchies flatter to increase creativity and output and instill a culture of “best idea wins.” Similarly, as business reaches natural frontiers, it extends its reach via decentralized structures. Companies like eBay and Amazon provide examples of centralized companies that decentralized the customer experience. These companies use the structure, control, and associated profit optimization of centralized entities and combine it with the bottom-up approach of decentralization in the form of customer reviews. The farthest extension of these ideals is instantiated in the DAO, as an organization that only exists in code. At the beginning of the twenty first century, DAOs epitomize organizational decentralization.
DAOs can use elements of profit generation and redistribution in a way that in effect combines capitalistic and socialistic ideas. DAOs allow for the organization of society in economic structures that generate profit while at the same time redistributing resources. DAOs combine elements of socialistic cooperatives with the meritocracy and incentivization of capitalism. For example, DAOs may provide individual members the ability to sell their personal (e.g. social media etc. consumption) data, preferences, opinions etc. in decentralized systems, including in real time. Such assets, e.g. one’s data, preferences, opinions etc. can only limitedly be commercialized in existing centralized structures. In decentralized structures such assets can be tokenized, valued, and mobilized. Similarly, tokenized hard assets, such as real estate, can be tokenized and sold in unprecedented fractional forms. The ability to control one’s data and fractionalized (hard) assets enables new forms of consumption for consumers. In the early 2020, several startups were developing a barter system in which services, such as free car rides etc., become available in return for disclosure of consumers’ data and personal preferences etc.
3. Addressing Age-Old Problems
DAOs provide algorithmic remedies for the age-old principal-agent problem.[56] Most business organizations, particularly corporations, are to some extent characterized by the separation of ownership and control, leading to many opportunities for agency conflicts.[57] An agency relationship results from a contract between a principal and agent whereby the agent acts on the principal’s behalf, pursuant to the decision-making authority the principal delegated to the agent.[58] Information asymmetries between the principal and the agent as well as agents’ opportunistic behavior resulting from self-interest lead principals to lack trust in their agents.[59] Because of this lack of trust, principals attempt to control, monitor, and supervise the agent to differing extents,[60] which leads to transaction costs.[61] Reducing transaction costs is an age-old goal, as outlined by Ronald Coase in 1937.[62] In 2016, the financial services industry began an effort to automate old processes to cut costs, errors, and friction.[63] The blockchain technology of a DAO helps address the principal-agent problem by reducing misconduct and error. Incentives are realigned between otherwise disparate interests of principals and agents because all participants in a DAO share the same goal, which reduces behavior that is contrary to the interests of the organization. This realignment of incentives shifts economic and power dynamics. The technology and incentive designs in DAOs are intended to remove hierarchy, eliminate errors in human judgment and prevent intentional misconduct such as self-dealing.[64] Because algorithms control large parts of the DAO interaction, DAOs have enhanced opportunities to reduce human error and corruption.[65] Potentially automated organizational functions include admission of new stakeholders, contracting with third parties, as well as taking other actions that normally require human deliberation.[66] The ledger is also public, so manipulation of the ledger is an unlikely method to defraud stakeholders.[67] Once the contract terms are coded in a blockchain, they are very difficult to change[68] which creates certainty and predictability.[69] It also increases efficiency, such as via the collective decision-making ability of a DAO through technology, reducing the costs associated with acquiring sufficient information to actively and efficiently participate in any decision-making process.[70] DAOs can reduce transaction costs and help align interests for stakeholders in a more decentralized manner.[71] The core common denominator for all DAO token members is a desire to optimize the DAO structure and token value,[72] which benefits all constituents.[73] Even performance assessment removes human error and corruption — instead of politics and hierarchy, assessment is based on value optimization, in an anonymized proposal voting scheme — employing non-discriminatory performance measures.[74] In the DAO environment, influence is determined by the value of a given token holder’s contribution to a project’s success.[75] The governing source code is public and therefore a DAO promotes transparency, [76] allowing individuals to maintain control over their personal data and their identities.[77]
4. Value to Efforts Workflow
The value to effort workflows in DAOs helps address the shortcomings of employee work requirements in hierarchical entities. Traditional hierarchical corporate structures often result in suboptimal outcomes and unsustainable solutions for employees. Work can be pushed down onto an employee who is forced, by economic necessities, to perform a function the employee may not appreciate. Performing tasks one does not like typically does rarely yield appropriate job performance. The supervisor in the traditional hierarchical corporate structure can determine where, what, and when workers have to perform, which often results in attendance of unproductive meetings, facetime, support for suboptimal outcomes to please supervisors, among many other suboptimal outcomes. By contrast, in DAOs, influence and outcomes are not created by hierarchy but rather determined by the value a token holder contributes to a DAO. The value-focused performance in the DAO structure helps optimize workflows and creates sustainable solutions for DAO token holders. Moreover, if a token holder adds substantial value to the DAO, other DAO token holders will want to add their skills in the same context which focuses the token holders’ efforts on the highest possible value proposition. This “value to efforts workflows” in the DAO structure has the potential to change the way society works and creates outcomes.
The incentive design for value to effort workflows in DAOs can take two core forms. Economic incentives of DAO members can be the value of the DAO token the members own. The hope that the value of the tokens increases or does not substantially decrease as more members are recruited and the respective DAO grows, incentivizes cohesion, work performance, and long-term engagement. In addition to the potential token appreciation, economic incentives for DAO members can take the form of earning tokens by performing tasks for the DAO. In other words, by supporting the DAO achieve its objectives, DAO token holders can earn a separate income in addition to token value appreciation.
Compensation in the form of token value appreciation originates from supply and demand. In theory, token value appreciation liberates DAO members from the shortcomings of existing corporate compensation practices. The compensation afforded to DAO members can take the form of increases in value of the DAO token the members own. Because the total outstanding and publicly held supply of tokens for any given DAO may be capped and fully transparent and pre-determined in code, the value of the respective DAO tokens could in theory increases with demand. Moreover, because the total supply of tokens can be pre-determined and capped in the DAO code, dilution by central administrators such as government officials or self-interested or biased executives/supervisors/CEOs is less likely, depending on the respective DAO design and code. Moreover, the alignment of interests between shareholders and management in the existing corporate structures via stock options, among others, and their suboptimal effects on sustainability, reporting, and work environment, is no longer necessary.
The priorities and work schedules of DAO members are not determined in a classical top-down corporate hierarchy. In fact, the traditional forms of command and control, giving and receiving orders does not exist because the functionality of a supervisor, CEO or boss does not exist in a DAO structure. What facilitates the cooperation of DAO token holders is the compensation of DAO members that, in addition to the supply and demand of tokens and token appreciation, can take the form of earning tokens by performing tasks for the DAO. In other words, by supporting the DAO achieve its objectives, DAO token holders can earn a separate income in addition to token value appreciation. While token holders in the DAO community may identify DAO requirements or needs, such as for instance a new or optimized webpage that helps the DAO community, such requirements are not identified in the form of a mandate. In other words, no particular DAO member is tasked with and mandated to perform the identified optimization.
The core common denominator for all DAO token members is the unifying desire to optimize the DAO purpose and the associated DAO token value. If a member-identified optimization has the potential to make the DAO more meaningful, useful, or valuable to the token holder members, the DAO token holders will desire to perform such optimization tasks as it is in their very interest to do so to help increase the value of their DAO tokens. Accordingly, in efforts to increase the value of its tokens, members can make DAO optimization proposals, e.g. optimize the voting procedure, webpage etc., that explain what actions ought to be taken to optimize and what value such actions will add to the respective DAO token holder community. The token holder community then votes on a given optimization proposal. If a proposal passes, the proposing DAO member will receive an award in the form of new tokens. Any such payment is added to the respective DAO blockchain but now requires for the proposing token holder to perform on the proposed parameters of optimization. In other words, once the optimization proponent has made a deal with the DAO, it is in the blockchain and the proponent is required to deliver on the proposal, or her contract is cancelled.
Performance assessment in the DAO structure is based on value optimization not on hierarchical or political processes. DAO workers’ performance is assessed in an anonymized proposal voting scheme which is the only basis for assessment and payment. If DAO members perform well, they will get remunerated regardless of politics, background, or education. The only thing that counts for purposes of assessment of DAO works is their performance of optimization parameters. This is an important difference between classical corporate hierarchies and DAO member performance of optimization proposals, e.g. the DAO’s non-discriminatory performance measures.
Non-performance penalties in the DAO structure are free from biases. If DAO community members do not deliver on a proposal that was voted in by the DAO token holder community, they lose credibility or reputation in the DAO token holder community and may be perceived as lacking an ability to add value. In fact, non-performance on proposal comes with significant reputational penalties. Non-performers in the DAO structure will be less likely to have future opportunities to earn tokens because the other token holders are unlikely to approve non-performer proposals. Crucially, non-performance reputational penalties are entirely free from racial or cultural biases and associated implications as the token holders are unlikely to even know each other. Rather, they all work towards a common goal of optimizing the DAO and the token value.
The DAO token holders’ focus on adding value benefits all constituents. Because projects that cannot add value take token holders’ time away from more productive endeavors, token holders become focused on managing their time and efforts. Unlike in traditional hierarchical organization where face-time and unproductive meetings are the norm, the self-governing DAO token optimizer avoids any such corporate hierarchy inefficiencies and frees herself from top-down inefficiencies and bad outcomes. In essence, the DAO work proposal and value optimization structure allows the avoidance of bad projects, bad colleagues, and unproductive meetings. The only thing that counts is the value proposition. In other words, the focus shifts from political positioning and supervisor pleasing without performance to a focus on adding active value to a given project. If value can be added, the tasks will be performed, if the assessment of the proposal suggests that the value proposition is in doubt, token holders will try to spend their time and skills on more productive and value-adding tasks. Importantly, because the DAO structure functions without supervisors, DAO token holders who decide they cannot add value on a given task can move to more productive endeavors that better utilize their skills without any penalties that would exist in the traditional hierarchical corporate structure.
Politics in the DAO structure have a different nature compared with traditional hierarchical corporate structures. In a traditional corporate hierarchy, position in the hierarchy and associated authority determine effort. In other word, the supervisor in the hierarchical structure can determine where, what, and when workers have to perform, resulting in suboptimal outcomes, attendance of unproductive and useless meetings, among many other negative effects. By contrast, in the decentralized DAO environment, influence is determined by the value a given token holder contributed to a project’s success.
5. Maintaining the Fluidity of Decentralized Order
The values and core belief systems of DAO members provide cohesion and longevity in decentralized systems. For example, contributors to Wikipedia share a common belief in the power of the crowd, that is, that decentralized collaboration for the pursuit of knowledge creates superior outputs. They collaborate because their values and core beliefs in knowledge creation unite them in a common cause.
The desire to be connected via a DAO to like-minded individuals has two core value propositions. First, individuals elect to join a DAO and thus signal their desire to cooperate in a decentralized network. Second, individuals select their particular DAO based on their values and interests. DAO members will choose to join a DAO if it corresponds with their existing inclinations, values, knowledge base, and belief system. If the DAO also elicits and uses individuals’ particular skillsets that reinforces their belief system, such as coding for people who believe in the freedom of decentralized systems, the DAO can be a very strong force for value reinforcements.
DAOs need values shared by the DAO members to unify them and to guarantee stability of cooperation while maintaining a decentralized structure. The values that unite DAO members are not only a determining factor for membership and cohesion, they also ensure the longevity of the DAO and its continual evolution. Groups that are not united by values disintegrate and perish. DAOs derive unity from common goals and aspirations beyond protocols.
For example, in the early 2020s, most DAO initiatives and their respective members were driven by a desire to create some sort of alternative open society that is less controlled by existing power structures. The underlying value and desire for freedom and change unites the DAO communities and as they evolve.
Unifying values increase efficiency in the DAO. The power of the DAO is instantiated and perpetuated through the individualized power centers in DAOs that morph into decentralized organization when the powers become correlated, aligned by a common principle, a transcendental goal. Individual DAO members may begin to partially imitate each other as they seek to progress toward the common goal. Individually and technologically the individuals and nodes of the chaotic network respond to this transcendental calling as they unite in purpose. This newfound harmony makes the group more efficient than before as they find varying ways to cooperate in more complex behaviors.
The longevity of DAOs depends on their ability to maintain the fluidity and decentralized order that was possible in the initial stages of the DAO. Without continual efforts to maintain decentralized order, values that initially unite DAO members have a tendency to result in ever tighter and complex hierarchical structures in the DAO. In the final stage, the harmony and cooperation of the decentralized organization filters the group into an ever tighter and complex hierarchical structure, raising some individuals into positions of power over others. Eventually, a tree structure emerges, a fully centralized organization. This filtering process towards centralization is often the result of competition, calculated allocation of power, or otherwise matching the position to the appropriate individual’s talents within the DAO. If the hierarchy is successfully completed, all individuals find their positions of power statically fixed and the levers of power clear. This end stage is a completely centralized organization, with the top of the hierarchy being the center of power.
[1] A. Rogojanu and L. Badea, The Issue of Competing Currencies: Case Study — Bitcoin, 21 Theor. Appl. Econ. 103–114 (2014); Paola Ceruleo, Bitcoin: A Rival to Fiat Foney or a Speculative Financial Asset? (Apr. 13, 2015) (Master’s Degree Thesis) (on file with LUISS Guido Carli Library)
[2] Robleh Ali et al., The Economics of Digital Currencies, Bank of England: Q. Bull., 2014, at 276.
[3] Zvezdin Besarabov and Todor Kolev, Predicting Digital Asset Market Based on Blockchain Activity Data (Oct. 15, 2018), https://arxiv.org/abs/1810.06696;
[4] CoinMarketCap, Crypto Glossary, CoinMarketCap, https://coinmarketcap.com/glossary/ (last accessed Jun. 22, 2020).
[5] Lanouar Charfeddine et al., Investigating the Dynamic Relationship Between Cryptocurrencies and Conventional Assets: Implications for Financial Investors, 85 Econ. Modelling 198, 201 (2020).
[6] Crypto Glossary, supra, note 4.
[7] Crypto Glossary, supra, note 4.
[8] See, e.g. Nathaniel Whittemore, Narrative Watch: Why 2020 Will Be the Year of the DAO, CoinDesk (Jan. 9, 2020), https://www.coindesk.com/narrative-watch-will-daos-break-out-in-2020.
[9] Stefano Bernardi, Why 2019 Will Be The Year Of The DAO, Stefanobernardi.com (Jan. 17, 2019), https://stefanobernardi.com/why-2019-will-be-the-year-of-the-dao/.
[10] MME Switzerland Token Summit, infra note 57, at 0:00–2:20.
[11] The LAO, Unpacking The LAO, Medium (Sep. 23, 2019), https://medium.com/openlawofficial/unpacking-the-lao-e463f7357b4b (quoting Charles Stroll, Accelerando (2005) https://en.wikipedia.org/wiki/Accelerando). “The divested Microsoft divisions have automated their legal processes and are spawning subsidiaries, IPOing them, and exchanging title in a bizarre parody of bacterial plasmid exchange, so fast that, by the time the windfall tax demands are served, the targets don’t exist anymore, even though the same staff are working on the same software in the same Mumbai cubicle farms. Welcome to the twenty-first century . . . . Today’s increasingly automated corporations don’t understand mortality.” — Charles Stroll. Matt Ridley, The Rational Optimist: How Prosperity Evolves, page 355, “I forecast that the twenty-first century will show a continuing expansion of catallaxy — Hayek’s word for spontaneous order created by exchange and specialisation. Intelligence will become more and more collective;
innovation and order will become more and more bottom-up; work will become more and more specialised, leisure more and more diversified. Large corporations, political parties and government bureaucracies will crumble and fragment as central planning agencies did before them. The Bankerdammerung of 2008 swept away a few leviathans but fragmented and short lived hedge funds and boutiques will spring up in their place. The collapse of Detroit’s big car makers in 2009 leaves a flock of entrepreneurial startups in charge of the next generation of cars and engines. Monolithic behemoths, whether private or nationalised, are vulnerable as never before to this Lilliputian Assault. They are steadily being driven extinct not just by small firms, but by ephemeral aggregations of people that form and reform continuously. The big firms that survive will do so by turning themselves into bottom-up evolvers. Google, dependent on millions of instantaneous auctions to raise revenue from its Ad Words, is ‘an economy unto itself, a seething laboratory’, says Stephen Levy. But Google will seem monolithic compared with what comes next.”; see also Valve Corporation, New Handbook for New Employees (2012), https://steamcdn-a.akamaihd.net/apps/valve/Valve_NewEmployeeHandbook.pdf
[12] Daniel Larimer, The Hidden Costs of Bitcoin, LTB Network (Sep. 7, 2013), https://letstalkbitcoin.com/is-bitcoin-overpaying-for-false-security. See also Stan Larimer, Bitcoin and the Three Laws of Robotics, LTB Network (Sep. 14, 2013), https://letstalkbitcoin.com/bitcoin-and-the-three-laws-of-robotics.
[13] Larimer, supra note 12.
[14] Larimer, supra note 12.
[15] See Vitalik Buterin, Bootstrapping A Decentralized Autonomous Corporation: Part I, Bitcoin Magazine (Sep. 20, 2013), https://bitcoinmagazine.com/articles/bootstrapping-a-decentralized-autonomous-corporation-part-i-1379644274; Vitalik Buterin, Bootstrapping A Decentralized Autonomous Corporation: Part II, Bitcoin Magazine (Sep. 22, 2013), https://bitcoinmagazine.com/articles/bootstrapping-an-autonomous-decentralized-corporation-part-2-interacting-with-the-world-1379808279; Vitalik Buterin, Bootstrapping A Decentralized Autonomous Corporation, Part III, Bitcoin Magazine (Sep. 25, 2013), https://bitcoinmagazine.com/articles/bootstrapping-a-decentralized-autonomous-corporation-part-3-identity-corp-1380073003.
[16] See Vitalik Buterin, Ethereum Whitepaper, Ethereum, https://ethereum.org/whitepaper/ (originally published 2013).
[17] MME Switzerland Token Summit, Beyond DAOs and Foundations: The Decentralized Autonomous Association (DAA Model), 16:57–17:30, YouTube (May 28, 2020), https://youtu.be/tGLiSg5OLzE.
[18] Id. at 16:57–17:30.
[19] Id. at 21:00–21:45.
[20] Id. at 22:00–22:30.
[21] Id. at 21:45–21:57 (citing Ethereum.org, Jan. 2014).
[22] Id. at 22:33–23:00 (citing Ethereum.org, Nov. 2015).
[23] Id. at 37:51–37:51.
[24] Id. at 40:21–40:34.
[25] Id. at 37:51–40:21.
[26] Id. at 40:38–41:33
[27] Id. at 40:12–40:21
[28] Id. at 42:40–43:00
[29] Vu Gaba Vineb, The State of The DAOs, HackerNoon (Apr. 17, 2019), https://hackernoon.com/the-state-of-the-daos-b7cba318460b.
[30] Gaba Vineb, supra note 29; see also Dash Central, Budget, https://www.dashcentral.org/budget.
[31] MME Switzerland Token Summit, supra note 17 at 22:52–23:30 (citing daohub.org, May 2016).
[32] See, e.g. Nathaniel Popper, A Venture Fund With Plenty of Virtual Capital, but No Capitalist, N.Y. Times (May 21, 2016), https://www.nytimes.com/2016/05/22/business/dealbook/crypto-ether-bitcoin-currency.html.
[33] The LAO, The LAO: A For-Profit, Limited Liability Autonomous Organization, Medium (Sep. 3, 2019), https://medium.com/openlawofficial/the-lao-a-for-profit-limited-liability-autonomous-organization-9eae89c9669c.
[34] Wulf A. Kaal, Blockchain-Based Corporate Governance (August 23, 2019). MAX PLANCK INSTITUTE LUXEMBOURG FOR PROCEDURAL LAW (December 2019) , Available at SSRN: https://ssrn.com/abstract=3441904
[35] The LAO, The LAO Joins Forces with Moloch DAO and MetaCartel to Begin to Standardize DAO-Related Smart Contracts, Medium (Dec. 13, 2019), https://medium.com/@thelaoofficial/the-lao-joins-forces-with-moloch-dao-and-metacartel-to-begin-to-standardize-dao-related-smart-b6ee4b0db071.
[36] MME Switzerland Token Summit, supra note 17 at 22:52–23:30 (citing daohub.org, May 2016).
[37] MME Switzerland Token Summit, supra note 17 at 23:25–23:39
[38] Kaal, supra note 34, at 18–19.
[39] See, Press Release, U.S. Securities and Exchange Commission, SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities, (Jul. 25, 2017); see also, U.S. Securities and Exchange Commission, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (Jul. 25, 2017), https://www.sec.gov/litigation/investreport/34-81207.pdf.
[40] MME Switzerland Token Summit, supra note 17 at 23:39–24:45.
[41] Dino Mark, Vlad Zamfir, Emin Gün Sirer, A Call for a Temporary Moratorium on “The DAO” (May 26, 2016) (Draft), https://docs.google.com/document/d/10kTyCmGPhvZy94F7VWyS-dQ4lsBacR2dUgGTtV98C40/edit#.
[42] Steven McKie, The Year of the DAO Comeback, Medium (Mar. 23, 2019), https://medium.com/amentum/the-year-of-the-dao-comeback-9c888b44980; see also Luis Cuende, The Aragon Manifesto, Aragon (May 8, 2018), https://aragon.org/blog/the-aragon-manifesto-4a21212eac03.
[43] Aragon Network / Whitepaper, GitHub, https://github.com/aragon/whitepaper.
[44] Id.
[45] Id.
[46] Id.
[47] Luis Cuende, DAOs, the Next Big Thing After Social Media, Aragon (Jun. 11, 2020), https://aragon.org/blog/daos-the-next-big-thing.
[48] MME Switzerland Token Summit, supra note 17 at 37:05–37:50
[49] Gaba Vineb, supra note 29; see also MakerDAO, The Maker Protocol: Maker DAO’s Multi-Collateral Dai (MCD) System, https://makerdao.com/whitepaper/White%20Paper%20-The%20Maker%20Protocol_%20MakerDAO%E2%80%99s%20Multi-Collateral%20Dai%20(MCD)%20System-FINAL-%20021720.pdf [hereinafter Maker Whitepaper]
[50] See MakerDAO, Governance Risk Framework (Part 1), MakerDAO: Blog (July 31, 2018), https://blog.makerdao.com/makerdao-governance-risk-framework/ (discussion of the The First Risk Construct).
[51] Id.; see also MakerDAO, Governance Risk Framework (Part 2), MakerDAO: Blog (July 30, 2018), https://blog.makerdao.com/makerdao-governance-risk-framework-part-2/, at “Maker token holder (MTH) and Maker internal risk team (MRT) duties”.
[52] Maker Whitepaper, supra note 49.
[53] The LAO, supra, note 33.
[54] The LAO, supra note 35.
[55] MME Switzerland Token Summit, supra note 17 at 33:53–34:15.
[56] Philip Boucher, How Blockchain Technology Could Change Our Lives, Eur. Parliamentary Res. Serv. Sci. Foresight Unit, Feb. 2017, at 20
[57] See Wulf A. Kaal, Blockchain Solutions for Agency Problems in Corporate Governance, Economic Information to Facilitate Decision Making (2019) https://ssrn.com/abstract=3373393 at 3 (citing Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305 (1976); Andrei Shleifer & Robert W. Vishny, A Survey of Corporate Governance, 737 J. Fin. 737 (1997)).
[58] Id. at 4.
[59] Id. at 5.
[60] Id. at 5–7.
[61] Id. at 3, 5–7.
[62] Ronald Coase, The Nature of the Firm, 4 Economica 386 (1937).
[63] Tanaya Macheel, The DAO Might be Groundbreaking, But Is It Legal? American Banker (May 19, 2016, 3:12 PM), https://www.americanbanker.com/news/the-dao-might-be-groundbreaking-but-is-it-legal.
[64] Shawn S. Amuial et al., The Blockchain: A Guide for Legal and Business Professionals ch. 4, at 2 (2016).
[65] Macheel, supra note 63, at 1; see also Boucher, supra note 56, at 20.
[66] Amuial et al., supra note 64, at 2.
[67] Amuial et al., supra note 64, at 3
[68] Amuial et al., supra note 64, at 2.
[69] Primavera De Filippi & Aaron Wright, Blockchain and the Law: The Rule of Code 152 (2018).
[70] Id. at 152.
[71] Shuai Wang, et. al., Blockchain-Enabled Smart Contracts: Architecture, Applications, and Future Trends, 49 IEEE Transactions on Sys., Man, and Cybernetics: Systems 2266, 2270 (2019) (citing What is a DAO?, https://blockchainhub.net/dao-decentralized-autonomous-organization).
[72] Kaal, supra note 57, at 19.
[73] Kaal, supra note 57, at 21.
[74] Kaal, supra note 57, at 20.
[75] Kaal, supra note 57, at 22.
[76] Amuial et al., supra note 64, at 2–3.
[77] Usman W. Chohan, The Decentralized Autonomous Organization and Governance Issues Dec. 2017 at 4 (citing Chohan, U.W., Initial Coin Offerings (ICOs: Risks, Regulation, and Accountability, 2017).
