DAOs: Legal and Empirical Review

The latest research on decentralized autonomous organizations (DAOs) revolved around the legal issues and the ‘picture-imperfect’ reality of DAOs. This article aims to address and go beyond those established problems by empirically reviewing the concept of DAOs and the necessity of a legal framework thereto. The first element of the article contains a critical review of the terms decentralized, autonomous, and organizations, which are not as absolute as they are presented to be. These discrepancies lead to the conclusion that there is no universally accepted definition for DAOs. The results lead to three recommendations for further definition development: (1) a definition that is based on the concepts of decentralization, autonomy, and organization, though be it in a way that corrects for the established discrepancies; (2) a negatively formulated definition that excludes organizations that do not meet a selection of criteria related to DAOs, or (3) a category-wise definition. The second element of the article builds upon those findings by displaying the needs and expectations of the DAO community for a legal framework. The findings suggest that there is a need for DAO-specific legislation to provide legal certainty and protection for DAOs, particularly for smaller DAOs. It identifies four rationales for legislation: operating in the traditional corporate world, legal protection, protection for smaller DAOs, and guidance for DAOs. It also highlights the different opinions on the extent of the legislation, ranging from no binding new legislation to new legislation with benefits for DAOs. Additionally, the article provides recommendations for the nature of (new) legislation, such as loose and future-proof legislation, and a solid and inclusive definition. Lastly, the article dives into the topics that the DAO community desires legislation on, which include tax, treasury and tokens, employment relations, dispute resolution, securities qualification, limited liability/legal personality, forking, voting, use of smart contracts, dissolution, disclaimer, and fiduciary status. It offers recommendations for these topics based on provisions from the COALA Model Law for DAOs and the DAO-specific legislation in Vermont, Wyoming, Tennessee, Utah, and the New Hampshire draft bill. These recommendations can inform the development of DAO-specific legislation, and provide guidance for DAOs on how they should shape themselves in accordance with legal requirements.