• S Fetouh and M Bacina

ASIC Chair delves into DAOs

Following our recent article on ASIC Chair Joe Longo's critical comments on crypto, this article will round up his thoughts on decentralised autonomous organisations (DAO).

In recent weeks Mr Longo has expressed his fascination with DAOs from the point of view of a corporate and markets regulator and described DAOs by addressing the differences between DAOs and corporations. He described them as:

organisations governed by artificial intelligence (AI) in the form of smart contracts, using blockchain technology, to record transactions with and between their members and third parties. No boards of directors or employees are in sight, and the rules of engagement are coded in smart contracts.

Further, in his testimony before the Senate Oversight Committee on Friday 29 November 2021, Mr Hill and Mr Longo discussed the regulatory challenges of control and ownership when comparing DAOs to the legal form of a corporation. Mr Longo stated:

I think the key points are that there are people behind it [the DAO] – I think – but the mechanism for the grouping or enterprise is driven by a series of what we call distributive technology, smart contracts and AI. And how the decision-making occurs within that DAO is unique to each DAO.

This is an important point to highlight because unlike in a corporation, the decision-making process is fluid and at a faster pace, given the dynamic nature of a DAO's underlying technology.

Given our recent article highlighting the Senate Select Committee Report into Australia as a Technology and Financial Centre Final Report’s recommendation to implant a DAO company structure, the following discussion between Mr Hill and Mr Longo is thought-provoking and engaging.

They first discussed accountability and touched on the element of intent in criminal liability of corporations highlighting the similarities with DAOs, but also the differences.

On corporations, they said:

Mr Hill: Someone’s accountable. There are some actual human beings who are accountable.
Mr Longo: Well, someone should be accountable … But even with corporations where we have a lot of experience, even to this day we struggle to prosecute a corporation. We don’t do that very often, because the principles governing corporate criminal responsibility remain elusive, and one of the reasons they are elusive is the point you were making about intent. One of the issues with a corporation is: how do I figure out whether the corporation had the relevant intent?

With respect to the intent element of criminal liability for a DAO, Mr Longo acknowledged that:

it’s going to be really hard to figure out what the directing mind and will is of the DAO.

Despite the challenges, Mr Longo emphasised the importance of being open-minded in his discussion with Mr. Hill:

I’m actually quite open-minded about DAOs. I don't have a particular view one way or the other; all I'm trying to say is: based on my present understanding of the legal analysis around a DAO, we have a long way to go to really understanding it.
We need to be open-minded. We've been talking about corporations, but there are other forms in which commerce is conducted. We have limited partnerships. We have partnerships. We have joint ventures.
Mr HILL: All of those have a controlling mind.
Mr Longo : They have people and they're just more familiar to us—all those forms are more familiar to us. However, we live in a time—again, in the spirit of open mindedness—where we're in the midst of a technological revolution and part of that revolution is artificial intelligence.

Mr. Longo's approach towards being open to the future of the potential of what is possible with DAOs is promising. He finally summarised ASIC's view:

Firstly, at ASIC, we are very interested in all of this, as I think we should be. We don't regulate it yet or may never be regulating it. It's clearly a phenomenon we are interested in and interested in understanding. Secondly, if parliament or policy goes in the direction of wanting to harness the concept of a DAO in connection with crypto, then obviously we will work with policymakers and parliament to make that work. I suppose the third point, which I've been making repeatedly, is that, as things stand, we are at the bottom of a huge learning curve as to how this is going to work for the sorts of reasons I've been giving. No doubt, answers will emerge and decisions will be made.
We are yet to invent—my words—the toolkit for looking into how a DAO works and making decisions about how they work.

In a similar light to the approach taken towards cryptocurrency, it seems likely that ASIC is waiting for Parliament to provide a clear policy on DAOs, and that it is willing to work with policymakers and Parliament to help achieve this.