Bodies Without Organs
How should a DAO be apprehended by the law?
Where cooperative undertakings are today structured by legal rules written in static documents and animated by human action, blockchain technology is argued to enable encoded organisational structures, sets of self-executing organisational scriptsundefined in the form of a decentralised autonomous organisation (“DAO”) that runs entirely on “smart contracts.”undefined This raises the possibility that data structures could approximate some or all of the functions of partnerships, charitable trusts, foundations, or corporations.undefined
In this Article, I ask “How should a DAO be apprehended by a legal system?” Law and markets are “locked into a dynamic process in which the rules that establish the game are continuously challenged by new contractual devices, which in turn seek legal vindication.”undefined When facing patterns of behaviour enabled by novel technology, the question is whether to accommodate those patterns within the received legal categories (with adjustments, but ideally without systemic rupture), or to prohibit them in the hope that the sanctions discourage their use. Law competes with other modes of regulation—including the “regulation” inherent in technological systems themselves—and does not always have the upper hand. In the longue durée, the dynamic is one of accommodation in which the law’s received categories are adjusted. In particular, recognition is regulative as well as facultative: the law cannot regulate something it says does not exist. This Article thus explores the process of reciprocal recalibration between legal categories and novel socio-technical practices.
The most obvious candidate category is the corporation, a class of non-human entity historically associated with groups of individuals engaged in a common purpose that is treated as a single acting subject. In my view, a legal system could impose legal personality on a DAO. However, it is unclear whether the entity would be the web of smart contracts themselves, or the “body” of (human) token-holders. In either case, themes in an older debate about corporate legal personality recur—private autonomy, common weal, state concession, and agglomeration of wealth—which turn on judgements of value.
As described by Ronald Coase… people exhibit a natural tendency to organise into more or less formalised institutions—associations, partnerships, companies, corporations, or other types of organisations referred to by economists as “firms”—when the costs of engaging in market transactions are too high.
This Article comprises three parts. Section 2 is methodological. Several leading legal commentaries on DAOs start with an economic analysis of the “firm” that fits broadly, if not exactly, within the programmatic bounds of “Law and Economics.”undefined Meanwhile, innovation has been motivated by a techno-libertarian ethos that emphasises individual exchange by technological means, circumventing intermediaries and obviating traditional governance structures. While not isomorphic, these approaches converge on the perceived need to reduce costs of economic coordination between individuals, particularly through constraint or elimination of human agents within the firm.
Section 3 is conceptual, exploring what might be gained by looking at DAOs from the perspective of legal theory. Drawing on legal history, my analysis follows the apparent agentivity of DAOs into an enquiry about the nature of legal subjecthood—of how groups are personified and assimilated to individuals. This is of primary importance to the question of legal personality, but also illustrates the inherently social nature of collective enterprises, the role of law in providing the conditions for economic activity, and suggests the range of considerations that should bear. Where looking at the “firm” foregrounds individual action within the structure of a market, looking at the “corporation” foregrounds group action as a mode of patterned behaviour.
Section 4 is normative, and ties back into the methodological choices discussed in Section 2. I refer to the “Legal Theory of Finance,” “Law and Finance,” and the “Law and Political Economy”undefined movements, which all emphasise how legal concepts constitute, and condition, patterns of market behaviour. DAOs are presented as tools to reform a basic institution of financial capitalism, but there are reasons to view emancipatory claims with temperance.
Section 5 concludes with some observations on the question of DAOs’ recognition as corporate entities as a matter of doctrinal law. I do not defend a position on legal personality in this Article; rather, I open the question whether recognition or non-recognition is the best way to control the negative externalities created by collective undertakings.