Andrew "Drew" Hinkes is Counsel at Berger Singerman LLP, a business law firm in Florida. Hinkes represents companies and entrepreneurs in state and federal commercial litigation matters, representation of court-appointed fiduciaries, and electronic discovery issues.
In this opinion piece, Drew takes a deep dive into the legal structures that surround distributed autonomous organizations, or DAOs.
The DAO leapt into the headlines earlier this month after it captured nearly $150m in funding, constituting almost 12% of the total amount of ether tokens in the Ethereum network. The DAO’s structure attempts to emulate the behavior of a crowdfunding business entity, and allows its investors to choose how The DAO will invest the collective ether (ETH) contributions among specific target projects.
The idea and structure of The DAO presents significant legal challenges. Specifically, courts will be forced to grapple with the implications of a web of contracts imitating an entity, instead of a legally incorporated entity.
The law is simply unprepared for DAOs. However, based upon the structure of The DAO, it is foreseeable that the US Securities and Exchange Commission (SEC) would view its tokens purchased by investors as a security or investment contract, subject to its jurisdiction.
The voting system implemented for The DAO is likewise problematic due to its mixed incentives and propensity to depress the value of ETH and its own tokens. Because investment in The DAO is laden with risk and seems to implicate SEC jurisdiction, The DAO may attract regulatory attention. What is a DAO? What is The DAO?
The DAO is an example of a decentralized or distributed autonomous organization (“DAO”). Generally speaking, DAOs are structures that use smart contracts to provide additional features and functionality to blockchains.
Implementations of DAOs, like The DAO, can include sophisticated arrangements of rights and powers encoded through smart contracts that emulate […]
