There Ain’t Any Such Thing As A “Decentralized Autonomous Organization”

One of the imagined applications for cryptocurrencies and blockchain technology is to create so called “Decentralized Autonomous Organizations” (DAOs).

These entities have no geographic location, existing purely in the offshore cyberspace of the Internet. They operate without human intervention, executing contracts and transactions via code, e.g., via “smart contracts” that use a blockchain and cryptocurrency.

Many fine things have been written about this concept, though few exist to date. Among other things, these entities are sometimes thought to be beyond regulation, and able to operate outside the bounds of “state run” systems, including law courts.

Stephen D Palley comments in Coindesk about “How to Sue A Decentralized Autonomous Organization”. Basically, when a grown up looks at these animals, he is rather skeptical. And as a lawyer, “questions and concerns arise”.

“As a legal matter, I’m skeptical that it’s really possible to abstract human agency, ownership or control from an entity. As a policy matter, I’m not sure it’s a terribly good idea, either.”

I’d say “The Distributed Autonomous Emperor has no clothes.”

For one thing,

“Lacking assets or a legal form, I expect that a court would see the entity that isn’t really an entity as a fiction and could allow a lawsuit to proceed against the individual [human] members.”

In other words, just because you declare your DAO is outside the jurisdiction of a court, doesn’t mean the court has to accept that.

Second, in the case that the DAO is designed to have “no humans” involved,

“A court would look to see who designed the thing, and keep looking until it found a first mover, or a human hand. Whether or not a judgment is ultimately collectible, you can usually find someone holding the hot potato.”

And third, he asks, reasonably, can a DAO “actually do anything useful if it does not have some recognized corporate form.” Who would sign a contract with an entity that has no one standing behind it? Who would conduct any business with an entity that has no legal standing?

He suggests that you incorporate in some regular way.  Come back on shore.  You can still do cool blockchain stuff and “smart contracts” and cryptocurrency, and also have some kind of legal structure.



Cryptocurrency Thursday

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