COALA endeavours to save DAOs from the Endangered List
Updated: Jul 6, 2021
The Coalition Of Automated Legal Applications (COALA) - a global, multidisciplinary blockchain research and development initiative has published a proposed "DAO Model Law" with some interesting input from academics at prestigious institutions.
DAOs, a quick introduction and their main challenge
Decentralised Autonomous Organisations (or DAOs) are a new type of organisation that, instead of being governed by a central owner or group, operates autonomously and transparently without independent human intervention.
How? They run on software code written on smart contracts (usually on the Ethereum blockchain) which code, automatically execute in a decentralised fashion and - being open-source, is readable by anyone. Those mechanisms replace rules and regulations which, in a company, is traditionally enforced by company officers or the board of directors who must act in the best interests of shareholders.
Hard to digest? Consider DAOs like the driverless taxi cab equivalent to companies.
Having an organisation without a main, centralised controller at the reigns has a series of benefits, but this fundamental feature has also meant DAO's are not currently recognised by any legal system as having separate legal personality. Without that personality, DOAs are unable to legally own assets, enter into contracts and sue and be sued, for example. On top of that, any party that collaborates or participates in a DAO runs the risk of facing unknown and potentially unlimited liability (if, for example, a DAO was found to be a partnership).
The COALA groups DAO Model Law
The COALA group sees the benefits in DOAs and is trying to create a way for DAOs to be recognised by legal systems. To do this, their Model Law identifies the policy goals which underlie traditional corporate law rules and offers a number of "technological guarantees" developed to act as "functional equivalents" to those corporate rules - while bearing in mind the new opportunities of blockchain technology.
According to COALA, the model is designed to:
assist governments in crafting their own DAO laws, so as to recognize full or partial legal personality to DAOs...to endow them with specific legal rights — and obligations — without requiring them to register or conform to traditional corporate law rules, so long as they satisfy the relevant legal provisions through technological means.
The COALA group seems to have concluded that the natural architecture of blockchain technology already meets the majority of regulatory requirements arising from legacy company law. The principles of functional and regulatory equivalence have been integrated throughout the DAO Model Law to seek to maintain the benefits which flow from the bespoke architecture of DAOs.
In its current form, the Model Law proposes that DAOs comply with a set number of rules to be granted legal personality with an attendant limitation of liability for participants and to act in accordance with the rights and obligations of States which have adopted the Model Law.
There are a lot of questions remaining but any proposed model laws represent a step in the right direction. See the proposed Model Law here.