A class action lawsuit filed by users of a decentralized finance (“DeFi”) protocol managed by a decentralized autonomous organization, or “DAO,” may shed light on the potential legal liabilities of a DAO and its participants. The complaint in Sarcuni v. bZx DAO, No. 22-cv-0618 (S.D. Cal. May 2, 2022), highlights several issues related to DAO liability of which DAO participants should be aware. There is a common misperception that an unincorporated DAO is not subject to liability because there is no entity for regulators to pursue. The fact is that such DAOs may be deemed general partnerships and the participants may each bear some liability for activities of the DAO. In some cases, a DAO includes a wrapper entity, in part, to shield participants from such liability. This issue highlights a tension between the aspirations of Web3 entities to be decentralized and community-governed on the one hand, and the challenges of accomplishing those aspirations given the current state of corporate law on the other hand.
It is called the Cowboy state for a reason. With varied terrain and a hearty population Wyoming has long been a haven for independent thinkers and doers – pioneers. The Wyoming legislature recently underscored that truth with the first state law addressing governance issues for decentralized autonomous organizations or “DAO(s).” We are not talking self-driving vehicles here. Those will not work on Teton mountain road switch backs. This is all about future vision of decentralized digital finance. A new gold rush for the west for those states who embrace it and Wyoming is doing just that. This March it passed senate bill SF0038 which provides for additional protections similar to those offered to members of limited liability companies for members of a DAO.…
Continue Reading Wyoming Takes the Lead With Decentralized Autonomous Organizations
Smart contracts, also referred to as chaincode in the Hyperledger world, are one of the most powerful aspects of blockchain and Distributed Ledger Technology (DLT). This “self-executing” code can receive various inputs and, based on “if-then” logic encoded therein, can take various actions and update the ledger state.
Based on recent actions by U.S. regulators, smart contract developers need to be aware of potential liabilities that they may face (beyond the usual issues with software development).
Continue Reading Smart Contract Developers – Beware and Lawyer Up!