The BlockchainGov Newsletter #14 | July Monthly Report
Welcome back to BlockchainGov’s monthly report! This issue features the final version of the Polycentricity Report, takeaways from our workshop at EthCC, and comments on the UK Law Commission’s DAO Scoping Paper.
I. Research
At the beginning of the month, we released the final version of the Research Report on Blockchain Technology and Polycentric Governance, authored by Primavera De Filippi, Morshed Mannan, Sofía Cossar, Tara Merk & Jamilya Kamalova. The report analyzes the evolutions of blockchain networks through the lenses of polycentricity.
Polycentric governance systems are characterized by multiple autonomous decision-making centers with overlapping areas of responsibility, which both compete and cooperate within a common overarching system of commonly agreed-upon rules, spontaneously or deliberately generating a shared social order. You can read the full report here.
In July, the EUI shared the 2024 Annual Newsletter of the Max Weber Programme featuring Kelsie Nabben’s research project on Accountability in Digital Domains and Protocols:
"Accountability, referring to the mechanisms and processes through which individuals, organisations, or institutions are responsible for their decisions and actions in relation to others, is a core governance concern in legal, social, and technical systems. During my current tenure as a 2023/24 Max Weber Fellow, some of my research activities relating to if and how accountability is produced and sustained in emerging technologies, have included investigations into Large Language Models (LLMs), data economies, and blockchain technologies."
II. Events
July in the Blockchain space means EthCC - the largest annual European Ethereum event focused on technology and community. BlockchainGov organized the 1-day workshop 'Cooking up Better Governance’ with Project Liberty during this year's edition, held in Bruxelles.
In the first part of the workshop, we worked with practitioners from three decentralized projects - Kleros, MakerDAO, and DSNP - to identify one governance issue and then elaborate collectively on possible solutions, drawing from the research collected in 'The Blockchain Governance Toolkit'.
In the afternoon, we expanded the conversation to a broader perspective with fruitful dialogues between Web3 practitioners and policymakers from the EU Commission. These discussions tackled critical issues and opportunities in decentralized governance. The day felt like a significant step forward in realizing BlockchainGov's mission: using our research to actively participate in the design and modeling phases of decentralized networks, giving life to new and exciting areas of experimentation.
We want to thank all the participants and partners for their incredible input!
Meanwhile, our researcher Jamilya Kamalova attended The European DAO Workshop (DAWO) in Winterthur, Switzerland on July 4th-5th! She presented "Bridging Innovation and Regulation: Towards Regulatory Equivalence for Blockchain-Based Dispute Resolution Platforms" a chapter of her PhD thesis. Brava Jamilya!
III. The Law Commission’s DAO Scoping Paper
The UK Law Commission has published a scoping paper looking into “how Decentralised Autonomous Organisations (DAOs) can be characterised and how the law of England and Wales might accommodate them now and in the future. The paper seeks to identify current issues around DAOs to inform any future law reform or innovations”.
The scoping paper explains what DAOs are and describes their current treatment under the law of England and Wales, providing a comprehensive account of recent developments and integrating insights from blockchain legal researchers and practitioners. Among these contributors, BlockchainGov and our sister organization, COALA, had the opportunity to provide input on questions posed by the Commission, which were subsequently incorporated into the report. Here are some of the intersecting points between our work and the UK Law Commission’s considerations.
DAOs in England and Wales
When asked about England and Wales’s situation, this was our response: ”To our knowledge, there are very few DAOs ‘incorporating’ in England and Wales through any legal entity form. Indeed, some DAOs, platforms for building DAOs and blockchain protocol appear to have shifted their domicile after initially being established in England & Wales.”
One of the few blockchain-based organizations, Nexus Mutual, incorporated in England and Wales, later elected to move its main operations offshore. It did retain only a non-profit community interest company registered in England and Wales, while all assets were transferred to a private interest foundation in Panama. However, while DAOs have largely avoided establishing entities within this jurisdiction, they frequently choose English contract law as their preferred legal framework.
The law of England and Wales, particularly in contract and commercial matters, has long been a key asset and export for the jurisdiction. Its foundation in common law provides significant adaptability, enabling the legal system to integrate new technologies with minimal statutory intervention. This flexibility makes English law an attractive choice for DAOs seeking a reliable and adaptable legal framework for their agreements. Our joint response highlighted this aspect:
”Although England and Wales is not yet seen as a viable alternative for DAOs to incorporate an entity in, the private ordering agreements, participation agreements and ‘constitutions’ of DAOs regularly refer to England and Wales as the governing law of these agreements. See for example the adopted participation agreements of DXDAO, GnosisDAO, NecDAO, TracerDAO, CowDAO, and SafeDAO. England and Wales is an attractive governing law choice because of the flexible signatory requirements under common law.”
DAOs and existing legislation
More generally, the Commission’s paper takes into account BlockchainGo and COALA’s critiques of the attempts to incorporate DAOs into existing corporate frameworks, such as Limited Liability Companies (LLCs). This approach emerged in various ways in jurisdictions like Wyoming, Vermont, and the Marshall Islands. However, we argued that this leads to incongruencies between the technology's attributes and the legal entities' requirements, resulting in unnecessary administrative overheads and bureaucratic challenges. This is shown by the fact that to date, no large DAOs and no significant number of DAOs have interacted with these regimes.
The COALA Model Law: A New Approach
Instead of relying on existing frameworks, BlockchainGov supports the COALA Model Law for Decentralized Organizations, which offers a more congruent legal framework for DAOs. This model law proposes a set of rules for national legislatures, addressing issues such as agency, legal personality, limited liability, governance processes, and off-chain activity. The COALA Model Law is directly addressed in the report as an alternative to the existing approach. 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 (such as “technological guarantees” afforded by blockchain infrastructure).”
The model law has not yet been directly adopted but has served as an inspiration for the legislation in Utah and New Hampshire.
This is everything for this issue! See you next month!