The Law Commission of England and Wales is examining the legal status of decentralised autonomous organisations (DAOs), a new type of organisational structure which uses blockchain, smart contracts or similar technology.

The Commission said that DAOs, often used by firms operating in cryptocurrency and DeFi markets, may function more “privately, operate with less transparency and have more centralised governance structures”.

DAOs are used by organisations involving multiple participants for investment purposes, for example to invest in or trade crypto-tokens and NFTs, or fundraising and charitable purposes. These structures are also used in software engineering to develop open-source software like blockchain or DeFi.

The UK body explained that while these organisational structures are sometimes compared to existing legal forms, like general partnerships or unincorporated associations, they often have different characteristics to these types of organisations.

The Commission is calling for evidence from users and other experts about how DAOs can be characterised and how it might accommodate these organisations now and in the future.

“DAOs are said to offer multiple benefits to market participants, incentivising cooperation and innovation, levelling playing fields, reducing the scope for human error, lowering costs, and increasing transparency,” said professor Sarah Green, law commissioner for commercial and common law. “Yet their legal and regulatory status is unclear.

“Our work will aim to build consensus on the best ways of describing the constituent elements of DAOs and to highlight ways in which the law of England and Wales might foster their development.”

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