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Governance of Decentralized Autonomous Organizations (DAO) and the Legal Nature of Smart Contracts

  • Legal Theory & Practice Review
  • Abbr : LTPR
  • 2024, 12(1), pp.255-315
  • Publisher : The Korea Society for Legal Theory and Practice Inc.
  • Research Area : Social Science > Law
  • Received : January 16, 2024
  • Accepted : February 24, 2024
  • Published : February 29, 2024

Jongho Kim 1

1호서대학교

Accredited

ABSTRACT

In this article, I started with what a DAO is, explained its advantages and disadvantages, legal challenges, and some examples of DAOs. Decentralized autonomous organizations that function without human intervention may seem like something out of science fiction, but blockchain-based DAOs have been a reality since the birth of Bitcoin. DAO is an abbreviation for Decentralized Autonomous Organization and is pronounced ‘[dao].’ In Korean, it is translated as ‘decentralized autonomous organization’, and in English it is not uncommon to use ‘DAO’. Although it is sometimes written as a decentralized autonomous organization, DAO is literally an organization that is decentralized and functions autonomously. DAO is one of the application areas of blockchain. Following in Bitcoin’s footsteps, many cryptocurrency projects, services, and platforms have emerged as DAOs. Additionally, as companies and work styles change rapidly, such as automation and remote work, some companies will become DAO/DAC, although not as radical as Consensys. In a conventional organization, there is an organization such as a board of directors or a person such as a CEO or president who makes decisions centrally, and the organization moves according to those decisions. On the other hand, in DAO, there are rules instead of a central organization. People’s activities are performed according to these rules and can perform automated tasks without a central organization. However, although automated, human intervention is involved in decision-making, implementation, and use, and rule-based deliberation activities are also performed. Blockchain-based DAO implementations describe these rules as programs, which are often implemented as open source smart contracts and maintained by the community. A future in which various companies and projects function decentralized and autonomously based on smart contracts to raise funds through ICOs, manage funds, and provide transparent and fair services may not be far away. The imbalance of capital concentration and the framework between capitalists and workers, which have been pointed out as problems in capitalist society, do not exist in DAO. Even if someone is the founder of an organization, he/she is basically just one of the token holders like any other participant, and there is no distinction between the company’s managers, full-time employees, and contract employees. When a decentralized society is realized, people with the same thoughts and hopes will be able to gather regardless of location or status. As more diverse people gather, more information and knowledge is accumulated, creating a virtuous cycle, which leads to the development of the organization. As a result, people will gather in ever-evolving organizations, and new forms of financing, such as NFTs or DAOs, will become possible. To get started with DAO, one must accurately understand the characteristics of Blockchain technology. Organization operators who want to start DAO in the future will need to study sufficiently. The government should also support the launch of organizations that autonomously pursue projects based on the knowledge and development know-how of blockchain business that has been in progress since the early days of startups. Such policy support is an essential element in the operation of the DAO project. It should also support the release of discord, which is used by many DAO operations. Although DAOs have many advantages, they also have some disadvantages (challenges). For example, here are some highlights: First of all, slow decision-making as an organization is an obstacle. Additionally, legislation is lagging behind. Additionally, because DAO smart contracts run on globally distributed nodes, ‘conflict of laws’ issues may arise due to different laws in different countries, regions, and jurisdictions. Regulations for cryptocurrencies such as Bitcoin vary by country and region, and in more extreme cases, Augur, a decentralized prediction market, is said to constitute a gambling crime depending on how it is used. While solutions to the technical problems have emerged over the past few years, the DAO’s legal challenges are a new organizational form, and regulatory conflicts are expected to become increasingly clear over time.

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