Recently, the US state of Wyoming has joined the ranks of a select list of regions around the world that recognize certain Blockchain organizations as legal entities.
Decentralized Autonomous Organizations (DAOs) are now able to incorporate as limited liability corporations (LLCs), provided that they are domiciled in that specific US state. Put simply, DAOs — which are decentralized organizations that fulfil a common purpose through autonomous, blockchain-based consensus — can operate as legal persons.
This has major implications for potential cooperations between people, as prior to this, everyone in the DAO was jointly liable for the aggregate behaviours of the entity. Consequently, if a single bad actor misused the infrastructure for nefarious purposes, then every person within the organization might be implicated in the crime; which obviously dampened enthusiasm for the technology.
It bears saying that a qualified legal professional versed in contract law might have been able to replicate the effects of the Bill prior to it being passed. But the key takeaway is that governments around the world are making these types of associations possible by simplifying the procedure.
At first glance, this seems like a hardly noteworthy change in the legal landscape. Yet, much as with the invention of joint liability companies several hundred years ago, it has the potential to change the world.
In this article, we will be exploring the wider implications of allowing DAOs to interact with the legal infrastructure of the world, where we’re presently at, and what steps we ought to take as a society to ensure this potential better future.
Wider implications
There are a number of problems throughout the world that require collective action at an unprecedented scale. Prior to the invention of blockchain, these problems needed to be tackled by in-person organizations, at a bare minimum to be able to lay the groundwork for the rules and requirements.
Nowadays though, the DAO structure allows for collaborative solutions without necessitating any member to meet in person. Rules are decided by the collective and enforced via transparent smart contracts.
This can create emergent behaviour that looks like centrally planned operations. For instance, a group of drivers could organize a DAO to serve as a ride-sharing platform, and they could make it into an equitable democracy where every member gets an identical vote, or they could assign any external metric to serve as to how to tally the votes (for instance, percentage of revenue billed or kilometres driven).
In other words, these organizational structures have the potential to rival the might of multi-billion dollar corporations, while empowering the participants at the smallest level.
This technological utility can be used in all manner of organizations, such as charities, activist groups and even government.
Imagine, for instance, a small community that can decide on policies, make contributions to a common goal (such as building a park), etc and members get a say depending on how well they are valued by the community.
The applications are limitless, and in the years to come, they will change a lot of thing about how we structure as a society. But between now and then, a lot has to happen.
The present state of DAOs
The majority of DAOs would likely be considered as unregistered partnerships under EU Member State Law which leaves its members joint and severally liable in the event of legal proceedings. Additionally, a DAO cannot legally create a contract or hold property.
Furthermore, there is currently no harmonized European corporate framework that would provide DAO members with necessary legal protection and provide DAOs with additional utility.
But there is hope, as some regions of the world begin to accept the validity of these entities. For example, three years ago, Malta accepted three bills on blockchain and cryptocurrency. Those bills set up a regulatory framework applicable to the blockchain environment and are collectively referred to as “The Digital Innovation Framework”.
On the other side of the pond, Wyoming is not alone in its increased acceptance of blockchain projects. Three years ago the US state of Vermont introduced a new form of company to its legal order: the Blockchain-Based Limited Liability Company (BBLLC).
A BBLLC can be described as a DAO incorporated as a Limited Liability Company (LLC) in Vermont’s jurisdiction. This act allows a DAO to validly enter contractual agreements and protect its “owners, managers and blockchain participants from unwarranted liability”.
While these examples remain isolated, the WACEO fully expects regulatory acceptance to grow in various jurisdictions in the coming years. The key question is whether a Limited Liability Company structure is flexible enough to deal with the different aspects of a decentralized autonomous organisation or if a new form is necessary.
It might not make sense to try to thrust new technologies into antiquated frameworks, but time will tell.
What WACEO wants to achieve
Presently, we are at the threshold of a new era. Our actions now will have a ripple effect in the centuries to come.
This might seem presumptuous to say, but legal precedent often works like that. It’s not uncommon for hundred-year-old cases to be cited as precedent and so in a nascent industry it is especially important to get the base structure in proper order.
We ultimately don’t know the full extent of the potential for DAOs, but we do know that the decisions today will greatly affect the future. And to that end, we want to create a regulatory framework that allows users the flexibility they need to enhance their surroundings, instead of limiting their activities.
Ultimately, we want to create adaptable regulatory frameworks that follow the best practices based on prior legal precedents, but we also want to establish new protocols that are fit for our digital age.
To do this, we have to come together and pool our experience into one place to be able to advocate for policies that will improve our industry. Then, once we have created this knowledge base, we want to lobby regulators to codify these best practices into law.
We have to be proactive in these early stages if we are to develop the full potential of this technology. That is the goal of the WACEO, to create a better tomorrow by building the regulatory groundwork today.
