Lucy Frew’s FinTech Column: October 2022

Lucy Frew, a Partner in the Regulatory & Risk Advisory Group, Walkers, shares her thoughts with Practical Law subscribers on topical regulatory developments concerning the FinTech sector. In her column for October 2022, Lucy considers decentralised autonomous organisations (DAOs) and whether decentralisation can survive regulation, including in the light of publications earlier this month by the Financial Stability Board (FSB) and others.

 

Decentralised autonomous organisations from a legal structure, regulatory and risk perspective

Decentralised autonomous organisations (DAOs) are a new form of online, decentralised organisation that have shown massive growth over the past two years. There are now over 10,000 DAOs and many billions of cryptoassets currently held in DAO treasuries. They are increasingly important in the context of crypto-token networks and many DAOs hold assets of significant value, but their legal and regulatory status is unclear.

Indeed, many uncertainties exist around DAOs, including:
  • What is a DAO from a legal perspective? Is it, or should it be, regarded as a legal entity such as a company or partnership or another new type of legal entity altogether?
  • Should a DAO have a separate legal personality? How can contracts or other liabilities be enforced against it in practice, and in which jurisdiction?
  • How decentralised does a DAO have to be?
  • Who is liable if something goes wrong? Does liability rest with the members, founders, developers or the DAO?
  • How do money laundering, reporting and other regulatory concepts apply to DAOs and who is liable for taxes?
DAOs represent a potentially revolutionary new way of doing business, with an ethos of transparency and democracy. Their growth has evidently attracted the attention of policy makers, regulators and the mainstream financial sector, whose reactions will shape the evolution of DAOs. In the UK, the Law Commission has initiated a 15-month scoping study, which will seek to address some of the above questions.

 

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Lucy FrewPartnerT +1 345 814 4676lucy.frew@walkersglobal.com

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