The UK Law Commission has recently released a scoping paper addressing the legal status of Decentralized Autonomous Organizations (DAOs) in the country. DAOs are gaining popularity as blockchain-based communities with shared goals, such as investing in startups or acquiring historical documents.
In the paper, the Commission highlighted the challenges in defining DAOs and aligning them with existing legal structures. The lack of consensus on what constitutes a DAO and how it should operate makes it difficult to establish a specific legal entity for DAOs in England and Wales.
While the Commission does not see an immediate need for a DAO-specific entity, it recommended reviewing existing laws, such as the Companies Act 2006, to accommodate the use of DAO technology in corporate governance. The potential of non-profit limited liability associations, similar to DAOs, is also being considered for further study.
The Commission emphasized the importance of ensuring that current legal frameworks can adapt to new technologies without hindering innovation. It suggested that targeted law reforms may be necessary to incorporate code-based governance structures within existing laws.
Additionally, the Commission proposed a review of Anti-Money Laundering regulations to assess how distributed ledger technology can support the same policy objectives. While a DAO-specific legal entity is not recommended at this time, the Commission sees value in ensuring that traditional legal structures can accommodate innovative technologies like DAOs.
By clarifying the defining characteristics of DAOs and making necessary legal reforms, many of the concerns raised by the Commission could be addressed. The potential for DAOs to revolutionize corporate governance in the UK is evident, and ensuring that the legal framework supports this innovation is crucial for future development in the industry.