Brown Rudnick Contributes Chapter on DAOs to Legal 500 Blockchain Comparative Guide

Jane Colston, Stephen Palley, Jessica Lee and Menelaos Karampetsos contributed a chapter to The Legal 500’s Blockchain Comparative Guide entitled “Beware Of The DAO: What ‘Breed’ Is It And When Might Liability Bite?”

The 2022 guide, published in November, provides an overview of the current trends and developments within the law and practice of blockchain law across a variety of jurisdictions.

Brown Rudnick’s chapter focuses on the current state of play regarding Decentralized Autonomous Associations (DAOs) and how the U.S. and U.K. are handling regulation of the software protocols.

“DAOs have been touted by some as the future of work and business as a result of their touted ability to automate processes, promote efficiency, and remove human manipulation or error, and for reasons of transparency and inclusivity,” the authors wrote. “However, this novel form of internet-native structure is not entirely without issues, and beyond the hype more mundane legal issues remain.”

The authors noted that DAOs have been receiving broad attention since 2016 when one was launched on the Ethereum network and drained of $60 million of ETH by a hacker. More recently, a hacker stole $112 million from the Mango Markets decentralized exchange and the U.S. Commodity Futures Trading Commission sued voting members of Ooki DAO for purported violations of the Commodity Exchange Act.

“In short, DAOs have been under increasing scrutiny,” the authors explained. “Their use raises certain fundamental questions about their legal status. Are DAOs software protocols or something more? Can existing legal governance structures apply to DAOs? Can a DAO be sued? Who is ultimately liable for the actions of a DAO?”

The article foreshadowed many of the issues and questions raised by the Law Commission of England & Wales in their recently launched Call for Evidence on the characterization and treatment of DAOs in the U.K., which is due to close for submissions on 25 January 2023 and can be found here.