Legal Aspects of DAO (Decentralized Autonomous Organization)

Decentralized autonomous organization (DAO) represents an innovative means for organization of a network of decentralized users for taking common decisions and engaging in smart contracts. Any user can submit a smart contract proposal to the DAO. Every user can vote for or against any given smart contract. The DAO program will execute the decision voted for by the majority. The following represents DAO’s features:

1. Joint control of the fund

2. Individual control over one’s own funds via choosing to leave the DAO.

3. Smart contracts are both unavoidable and inevitable.

4. A network that can have an unlimited number of users.

5. Freedom of membership.

6.DAO software operates autonomously, with rules created in the form of code by the founder, yet these rules are not controlled by their creators.

DAO’s Script:

DAO’s script is written in the programming language “Solidity”. DAO is comprised of a group of rules and instructions. DAO’s script is comprised of the following:

a. Instructions that regulate the owner’s rights.

b. Instructions regulating transfer of ether.

c. Instructions controlling the procedure of users’ voting.

d. Instructions regulating the procedure of changing the rules of voting.

e. Instructions regulating proposals.

f. Instructions regulating the process of proposal’s execution.

DAO’s script can also include other instructions according to the creator’s vision.

Token:

Tokens are issued by the DAO. Any user can obtain the tokens in exchange for ether from DAO during the phase of creation or later on from other users. The token can be considered a “share” as it grants users’ voting rights and the capability to take a decision regarding the allocation of funds. Furthermore, tokens can be viewed as debentures with a group of special rights. As tokens are debentures, DAO can be viewed as a form of an open investment fund throughout which users can start and validate investment decisions that are taken under the supervision of the creator of the DAO (congress leader).

Legal traits of DAO:

DAO can be considered a legal entity and a collective investment fund. The following represents the legal traits of DAO:

1. Legal personality:

DAO represents a form of a partnership or an association. However, DAO is not a legal person who is verified by the governmental authorities.

2. Jurisdiction:

It is rather hard to determine DAO’s jurisdiction. In other words, DAO has no specific jurisdiction. It is not located in a certain country. Given the fact that DAO has a digital structure, we cannot implement a geographical approach. The most convenient approach is to determine DAO’s jurisdiction on the basis of its creator who is also referred to as the congress leader.

In case of delict, we can apply the place where events take place. This place can be determined on basis of the jurisdiction of the contract’s other party, while considering the place of negotiation and promotion.

DAO’s legal representative can be determined on basis of marketing efforts. The DAO’s representative is the legal representative and is the one who recruits new investors and/or promotes the merits of investing in the DAO. The promoter could be sued for misrepresentation, if he/she has no legal rights for promoting the DAO. On the other hand, if the promoter has the legal rights for representation of the DAO, he/she has to provide proof for being the owner, creator, manager or representative of the DAO.

3. Registration:

DAO doesn’t require any form of registration. Tokens are neither shares nor securities and ether is not yet considered a currency in most of the world’s countries.

4. Limited liability:

There are no rules for limiting the liabilities of DAO’s users. In a small group of countries, DAO can be considered a partnership that has an unlimited legal liability.

5. Voluntary membership:

Just like publicly listed corporations, anyone who invested in a token (share) is a member of the DAO. A DAO’s member is a legal, natural or even a digital person who has bought DAO tokens via ether.

6. Permanent existence:

The DAO permanently exists until members are recruited.

7. Governance:

DAO is managed in a non-central manner. All decisions are taken by the DAO’s members, yet there is a curator who has more rights, than other members, to control the DAO’s contracts and proposals.

The curator is an entity assigned by the DAO to act as its intermediary in the real world, given the fact that the DAO, by itself, cannot build a product, develop hardware or write code. The curator bridges between the DAO’s digital world and the contractors’ real world, which results in an invoice addressing to a contractor that contains the DAO. The curator is responsible for maintain the DAO’s code, proposing changes and whitelisting proposals.

8. Contract capacity:

DAO doesn’t represent a legal person, yet it can enter into contracts.