Stirling & Rose has submitted its response to the UK Law Commission’s Call for Evidence on the topic of Decentralised Autonomous Organisations (DAOs). We highlight the potential for Autonomous Organisations (AOs) to outlive the decentralisation of the underlying infrastructure that supports them. We argue that the AOs of the future will have AI-style director capabilities closely mimicking centralised human governance, but with superior access to data for real-time decision making. We also note that there is a continuum in the degree of autonomy in AOs, with governance delivered via a combination of executing code and human decision-making. The pathway to fully autonomous AOs will likely involve an ongoing expansion of the matters handled autonomously, without human intervention. Ultimately, our submission emphasises the importance of legal accountability for AOs and the need for legal personality to protect internal and external stakeholders interacting with the AO.
Granting legal personality should not be unconditional. In our submission, we propose a list of bare requirements necessary to recognise that an AO is a separate organism that may functionally operate separate from founders, token holders, and developers. These conditions include registration with appropriate agencies and a unique identifier, identification as an AO, evidence of de minimus functionality, sanctions for bad behavior, economic reserves, adjustments for intent, and protections for minority token holders. The idea is to provide a balance between recognising the separate functionality of AOs and ensuring that humans are held accountable for their actions and decisions related to the AO.
It is important to consider the legal definition of a DAO and its potential classification as a partnership, which could result in unintended liability and risk for token holders. One potential solution to this issue is the use of smart legal contracts as a way to moderate the complexity of risk allocation, rules of engagement, and obligations between different members and regulatory bodies. Additionally, it may be beneficial for founders to establish a not-for-profit foundation as the public facing entity in order to avoid the potential classification as a partnership.