DAO is the acronym for decentralised autonomous organisation, but what does it stand for? In a condensed mini-series, we summarise the most important points about the DAO.
The DAO is described as the corporate form of the future. The basis of a DAO is the blockchain or distributed ledger technology through which “a reliable, open and programmable accounting system”¹ is made possible.
This possibility of the purely virtual existence and execution of a company simultaneously leads to difficulties in understanding and classification. In order to make the best use of the DAO’s opportunities, it is not the DAO that should adapt to the legal system, but at least the development of new company concepts should be encouraged. Instead of company shares, cryptocurrencies are issued here in the form of tokens. The organisation and execution of the society functions via the networking and execution of smart contracts, i.e. self-executing programme codes.²
Although the organisational form is still very young, there are already a large number of DAOs with different focuses. These include social network DAOs as platforms on which Web 3.0 developers can exchange ideas with each other or investment DAOs as member-managed venture capitals.³ The best-known investment DAO was “The DAO”, founded on the Ethereum blockchain in 2016, which collected huge sums within a short time and lost them again just as quickly due to a hacker attack.⁴
In addition, there is even a draft of a model law developed by blockchain experts from a wide range of industries, the so-called DAO Model Law,⁵ as a harmonised and transnational framework for legal recognition.
Chances and risks
The structure of the DAO offers enormous opportunities:
- The company does without an executive board, managing director and hierarchies.
- The smart contracts and thus the operational business are publicly available on the blockchain and thus transparent.
- The global networking of the company and the token holders is practically automatic via the blockchain and the internet.
- Access restrictions are eliminated through peer-to-peer transfer.⁶
However, these opportunities are also accompanied by enormous risks, especially liability risks for the initiators. Therefore, it is all the more important that a DAO does not “float in the air” completely decentralised from a legal framework and is classified de lege lata as a partnership, but is directly established as a (liability-limiting) company with its registered office.
Not only do different types of companies come into consideration as possible legal forms, but there is also a wide range of possible countries of incorporation, some with their own DAO legal forms.
More on this in Part 2 of our mini-series…
¹ Mienert, RDi 2021, 284.
² Fleischer, ZIP 2021, 2205 f.
³ ar.ca, May 2022, DAOs: An Institutional Guide to Decentralized Governance, mit Beispielen auf S. 11 f., available under Link.
⁴ Gyr, Dezentrale Autonome Organisation DAO, in: Jusletter 04.12.2017, S. 5 und Grassegger, Die Zeit 26.05.2016, Die erste Firma ohne Menschen, available under Link.
⁵ Accessible at https://coala.global/daomodellaw/.
⁶ ar.ca, May 2022, DAOs: An Institutional Guide to Decentralized Governance, S. 7, available under Link.