DC-Blockchain Implementation of the DAO Model Law:Challenges & Way Forward | IGF 2023

Knowledge Graph of Debate

Session report

Morshed Mannan

The discussion surrounding regulations for Decentralized Autonomous Organizations (DAOs) encompasses various aspects. Incorporation fees, perceived as a form of taxation, pose challenges in establishing regulatory equivalence. These fees have been a recurring topic during the transposition process, evoking a negative sentiment.

Another area of contention is the verification of formation requirements in the DAO Model law. Different jurisdictions hold differing views on who should conduct the accreditation, leading to ongoing debates and a neutral sentiment on the matter.

Regulators face the task of applying existing laws to DAOs, which presents potential risks and unintended consequences. As regulators endeavor to enforce these laws, cases pertaining to DAOs may reach appellate courts, resulting in the emergence of case law related to this technology. This neutral sentiment underscores the uncertainty surrounding the outcome.

A key argument posits that decisions made in appellate courts may establish legal precedents that restrict innovation. This negative sentiment highlights the potential risks and unintended consequences of this approach.

To mitigate these risks, proponents advocate for a proactive regulatory approach, including the use of regulatory sandboxes. This proactive stance is seen as a means to shape laws in a manner that fosters innovation without impeding progress. A positive sentiment surrounds this argument, emphasizing the need to prevent harm and anticipate future risks.

Furthermore, regulators are encouraged to educate themselves about DAO technology prior to implementing laws. This sentiment stems from the belief that a thorough understanding of the intricacies of this technology is necessary for crafting effective regulations. Educating regulators would facilitate a smoother implementation process and contribute to the overall success of DAO regulation.

Jarrell James

The analysis explores the introduction of the Dow Model Law and the coalition group Koala. Koala is a multidisciplinary research and collaboration firm that brings together professionals from various fields such as law, academia, computer science, and entrepreneurship. They aim to understand the challenges and opportunities presented by decentralized technologies and their impact on the legal system and society.

Jarrell James acknowledges and appreciates the efforts of the coalition and panelists. Notably, Rick Dudley is praised for establishing cross-field technical standards, Fatemeh Panazera is recognized as the leading counsel, and Silke is commended for facilitating the Dow Model Law presentation.

The analysis delves into the legal recognition and interaction challenges faced by the decentralized technology space. Obtaining legal recognition is a major hurdle for entities operating in the decentralized space. The Dow Model Law offers a meaningful legal pathway to address these challenges and allows decentralized technology entities to interact with municipal authorities, corporations, and international coalitions. The development of the Dow Model Law took three years, highlighting its importance and thoroughness.

The analysis also explores regulatory challenges and privacy concerns related to Decentralized Autonomous Organizations (DAOs). Governments exhibit major hesitation in interacting with single entities or individuals in the decentralized space, and there are concerns beyond just liability. Additionally, regulatory challenges are likely to arise during the process of recognizing DAOs due to their unique characteristics.

The transparency of DAOs is discussed, with all transactions and payments being visible to participants. However, this transparency undermines privacy, leading to a quest to restore privacy within DAOs. Regulatory authorities lack understanding regarding the extent of transparency provided by DAOs and the tracking capabilities they offer.

Privacy is perceived as being anti-state in the digital space, creating conflicts with state objectives. The analysis emphasizes the importance of reconciling these ideological differences.

Furthermore, the analysis recognizes the significance of coordination and innovative solutions in the field of regulation. The efforts of Koala in developing novel solutions, along with the implementation of the Dow Model Law, are appreciated.

Lastly, the analysis highlights the role of civil societies and coalitions in effecting change in different jurisdictions. The frustration faced in movement and change across various legal systems is acknowledged.

Overall, the analysis provides a comprehensive overview of the Dow Model Law and the challenges faced by decentralized technologies. It emphasizes the importance of legal recognition, addresses regulatory challenges, privacy concerns, and advocates for the reconciliation of ideological differences. The role of civil societies and coalitions in effecting change and innovation is also emphasized.

Silke Noa Elrifai

Decentralized Autonomous Organizations (DAOs) offer a new way of organizing and coordinating global collaborations. They present large-scale coordination opportunities that align with the needs of an increasingly multipolar world. However, DAOs currently face significant legal uncertainties that impede their development. To address this, the proposed Model Law aims to grant DAOs legal personality and capacity, enabling effective interaction with the off-chain world. The Model Law is based on the principles of functional equivalence and regulatory equivalence. While it seeks to provide solutions for taxation issues and legal certainty, the requirement for DAOs to register as global entities poses challenges. Some jurisdictions, such as Utah, have not adopted this approach, hindering the implementation of the Dow Model Law. Efforts are needed to improve the Model Law, especially regarding registration requirements, to make it more feasible for jurisdictions to adopt. Taxation concerns are also an obstacle in the interaction between jurisdictions and DAOs, with jurisdictions emphasizing potential tax benefits. Silke Noa Elrifai suggests an innovative approach to addressing taxation rules for DAOs. Additionally, the transparency of DAOs undermines privacy, and efforts should be made to reintegrate privacy into the model while maintaining transparency for regulatory purposes. The Model Law may not be suitable for all jurisdictions due to its issues, and the default characterization of DAOs as general partnerships or unincorporated associations with joint and several liabilities needs to be addressed. Overall, addressing legal uncertainties, registration requirements, taxation concerns, privacy issues, and the default characterization will support the growth and development of DAOs while respecting legal standards and protecting individual rights.

Rick Dudley

Regulators have faced criticism for a perceived lack of understanding regarding internet communication and cryptographically signed messages. It is argued that regulators misunderstand the unique properties of these mediums, resulting in a negative sentiment towards their treatment. However, proponents argue that existing laws, protections, and regulations can be applied to satisfy the requirements of both the online community and regulators, advocating for a positive approach without the need for special treatment.

There is also a negative sentiment towards compromising privacy due to technical limitations or engineering practicality. Privacy is considered a constitutional guarantee, and individuals are not willing to sacrifice their privacy due to these limitations. The importance of protecting privacy rights and implementing privacy-enhancing measures in technological advancements is emphasized.

Privacy issues related to blockchain are seen as similar to traditional internet privacy concerns, generating a neutral sentiment. The argument is that privacy compromises in blockchain operations, particularly decentralized autonomous organizations (DAOs), are not distinct from the compromises observed in regular surveillance practices. This suggests that similar privacy concerns apply to both traditional internet activities and blockchain technologies.

Rick Dudley, a business owner in the United States, supports the use of Tornado Cash to provide financial privacy to his employees who receive payments through blockchain foundations. This positive sentiment reflects the value he sees in granting financial privacy and the enhanced security it offers. This indicates that privacy-enhancing technologies like Tornado Cash are being recognized as beneficial in the context of blockchain finance.

Privacy pools are considered a technology that restores a basic level of privacy. These pools allow for transaction privacy that can be revealed upon request, and they can demonstrate the legitimacy of funds by ensuring they were never sourced from regulated or restricted entities. The positive sentiment towards privacy pools suggests they are valued as a tool for individuals to regain control over their privacy rights in the digital realm.

There is an argument for regulators needing to educate themselves and gain a better understanding of these technologies, affirming the importance of keeping pace with technological advancements to make informed decisions and regulations.

Regarding regulation, there is a negative sentiment towards creating numerous new laws. Advocates argue that existing laws and regulations can be effectively applied, eliminating the need for extensive legislation. This preference for using and adapting current legal frameworks aims to avoid burdening the industry with unnecessary regulatory complexities.

In summary, regulators face criticism for their perceived lack of understanding of internet communication and cryptographically signed messages. However, proponents support the application of existing laws and regulations to meet the needs of both the online community and regulators. Privacy is considered a fundamental right, and compromising it due to technical limitations is met with a negative sentiment. Blockchain privacy issues are seen as similar to traditional internet privacy concerns, and privacy-enhancing technologies are recognized and valued. Regulators are encouraged to educate themselves, and a preference for using existing laws over creating excessive new regulations is evident.

Fatemeh Fannizadeh

The discussion surrounding the model law for Decentralised Autonomous Organisations (DAOs) covered several important aspects, including legal personality, limited liability, and internal governance. The model law aims to address all the necessary considerations in corporate formations, such as rights, obligations, and the entity’s purpose. It specifically emphasises that there is no implicit fiduciary duty for any one decision-maker. In addition, provisions were made to accommodate the unique nature of blockchain technology, including the possibility of forking.

Various jurisdictions have considered the model law for DAOs, including Australia, the UK, St. Helena, and New Hampshire. However, the state of Utah in the US is the only one that has adapted and implemented the model law thus far. Other jurisdictions, such as Vermont, Wyoming, and the Marshall Islands, have attempted to regulate DAOs through incorporation. Utah’s adaptation of the model law has drawn criticism, particularly regarding the requirement for DAOs to register within the jurisdiction and nominate a registered agent. Critics argue that this requirement deviates from the original model law and is an attempt to exert control over DAO entities.

The discussion also highlighted privacy as a constitutional right. It was emphasised that privacy is not against the state, but rather, it is recognised as a fundamental right in most places. The false dichotomy between protecting privacy and preventing terrorism financing and money laundering was also disputed. It was argued that individuals should not be forced to choose between their privacy and preventing illicit activities, as both can be upheld simultaneously.

When it comes to regulating the DAO Model Law, caution was advised against rushing the process. The technology underlying DAOs is still in its organic growth phase, and it was suggested that hasty regulation could hinder its development. Instead, the establishment of a regulatory sandbox was proposed as a way to allow the technology to mature more effectively. A regulatory sandbox would provide a controlled environment for experimentation and refinement.

The future of the internet was also discussed, with a prediction that it would become more decentralised in the next 20 years. This implies a shift towards a less centralised structure, where power and control are distributed among various entities and individuals. Such a transformation could have implications for internet governance, privacy, and overall functionality.

In conclusion, the discussion on the model law for DAOs covered various important aspects, including legal personality, limited liability, and internal governance. While Utah’s adaptation of the model law has faced criticism for imposing additional requirements on DAOs, other jurisdictions have pursued different approaches, such as incorporation. Privacy was recognised as a constitutional right that should not be compromised. Caution was urged in the regulation of the DAO Model Law, with the suggestion of implementing a regulatory sandbox. The future of the internet was predicted to involve a more decentralised structure, potentially impacting governance and functionality.

Speakers