Decentralised Autonomous Organisations (DAOs)

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

We published a scoping paper on decentralised autonomous organisations (“DAOs”) on 11 July 2024, which considers how DAOs can be characterised and identifies current issues around DAOs to inform any future law reform or innovations.   

Download the scoping paper on DAOs here 

Download the summary of the scoping paper on DAOs here 

What is a DAO? 

Decentralised autonomous organisations or “DAOs” are a new kind of internet-based collaborative organisation that coordinates people and resources using rules expressed in computer code. DAOs are part of what might be called the “crypto ecosystem”. 

So-called DAOs control billions of dollars of assets. They have already been the subject of litigation in the US, and potentially expose participants to significant legal liabilities. And yet, beyond the very high-level description above, they are difficult to describe, practically or legally, largely because the term “DAO” does not refer to any one type of arrangement. Commentators disagree over what characteristics an arrangement must have in order to be properly called a “DAO”, and many arrangements using the term look very different to the DAO ideology as originally conceived.  

The project

The Law Commission was asked by the Government to undertake a scoping study on DAOs, and in particular to: 

• explain what a DAO is, and how a DAO might be categorised in law; and 

• identify the main options for legal reforms or innovations that might be required to existing company law and other legislation in England and Wales to clarify the status of DAOs and facilitate their uptake. 

The Commission has not been asked, at this stage, to make formal recommendations for law reform. 

Scoping paper

We published our scoping paper on DAOs on 11 July 2024. It was informed by discussion with stakeholders and the responses we received to the call for evidence, published in November 2022. 

Our paper is addressed primarily to the Government and therefore focuses on the aspects of DAOs that are significant for policy and legal purposes. As such, the paper does not aim to provide overly detailed or technically precise descriptions of the technical features of DAOs, but rather explains the technological features to the extent necessary in the context. It is designed to be an introduction to the topic, rather than a comprehensive review of everything going on in the market, with all the intricacies of practice. We identify some of the implications of different structures used by DAOs, and identify situations in which stakeholders involved with such arrangements may be exposed to risk, to raise awareness and encourage participants to consider their exposure. We therefore hope that our work will also be of interest to market participants and advisors.  

The paper identifies areas where further work might be useful to accommodate DAOs, if this were thought desirable, and to ensure that their activities are within the reach of the regulatory regime. These include:    

• There is no current need to develop a DAO-specific legal entity for England and Wales

• The Companies Act 2006 should be reviewed in order to determine whether reform is needed to facilitate the increased use of technology at a governance level where appropriate. The law of other business organisations such as limited liability partnerships should also be reviewed with the same aim. 

• Further work could be undertaken to determine whether the introduction of a limited liability not-for-profit association with flexible governance options would be a useful and attractive vehicle for organisations in England and Wales, including non-profit DAOs. 

• Proceeding with the Law Commission’s planned review of trust law under the law of England and Wales. This will consider – in general terms rather than in the DAO context specifically – the arguments for and against the introduction of more flexible trust and trust-like structures in England and Wales.

• Government should consider a review of anti-money laundering regulation in England and Wales to consider whether the same policy objectives can be achieved in a manner more compatible with the use of distributed ledger and other technology.  

You can read the scoping paper here.  

Contact

To contact us please email  commercialandcommon@lawcommission.gov.uk