The UK Law Commission recently published a scoping paper discussing the legal characterization of Decentralized Autonomous Organizations (DAOs) in the country. DAOs are blockchain-based communities that work towards a common goal, such as investing in startups or acquiring historical artifacts. However, the Commission highlighted the difficulties in defining DAOs, as there is a lack of consensus on their structure and operations. This ambiguity makes it challenging to align DAOs with existing legal forms in England and Wales.
The paper emphasized the potential risks of adapting current laws to accommodate new technologies like DAOs. It cautioned that attempting to create technology-specific legislation may hinder innovation instead of fostering it. Commissioner for Commercial and Common Law, Professor Sarah Green, pointed out that disagreements on what constitutes a DAO further complicate the legal framework. As a result, the Commission recommended against establishing a DAO-specific legal entity at this time.
Despite the challenges, the Commission suggested reviewing the Companies Act 2006 to identify potential reforms that could facilitate the use of DAO technology in corporate governance. Similarly, laws governing other business entities, such as limited liability partnerships, should be reassessed to support innovation. The Commission also proposed further research on the applicability of non-profit limited liability associations, like DAOs, in England and Wales.
While the UK currently lacks specific regulations for DAOs, other jurisdictions, such as Wyoming, recognize blockchain-based DAOs as legal entities. The Commission acknowledged that existing laws in England and Wales already accommodate the use of code in governance and activities. However, targeted law reforms may be necessary to standardize the use of code within corporate structures.
The paper suggested that the government review Anti-Money Laundering regulations to assess how distributed ledger technology, like that used by DAOs, can align with policy objectives. While a DAO-specific legal entity is not recommended at this time, the Commission encouraged ensuring that current legal frameworks can adapt to new technologies that fulfill the same functional requirements as traditional structures. Solidifying the definition and characteristics of DAOs could address many of the legal challenges highlighted by the Commission.
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