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This case just confirmed what we already knew before: DAOs are just groups of people working together, and they don't get any special treatment just because th

This case just confirmed what we already knew before: DAOs are just groups of people working together, and they don't get any special treatment just because they coordinate their activities via blockchain instead of email. Enforcement will be the interesting part. If a DAO has anonymous members and no LLC or corporate structure associated with it, then a court can rule that the members are liable, but it could be very difficult to enforce that liability.

AlexandrB 4y ago
Many of them don't even coordinate their activities via blockchain because it's too slow and expensive[1]. [1] https://www.banklesstimes.com/news/2023/03/08/off-chain-governance-strikes-a-chord-with-daos-as-77percent-of-them-favor-it-over-any-other-form/ https://www.banklesstimes.com/news/2023/03/08/off-chain-gove...
- zoklet-enjoyer 4y ago
  Governance activities are talked about on forums and chatrooms. Governance is voted on on-chain Edit: I'm posting too fast, so here's an edit for a reply I don't know anything about Ethereum DAOs. Check out Tendermint chains (Cosmos, Osmosis, Crescent, Stargaze, EVMOS, Kava). Gas is cheap and all voting is on-chain. Governance discussions happen mostly on a forum called Commonwealth and then they're put on chain and voted on by validators and stakers.
  - AlexandrB 4y ago
    Except when it's not: https://docs.decentraland.org/player/general/dao/overview/how-does-the-dao-work/ https://docs.decentraland.org/player/general/dao/overview/ho... > To circumvent the very high gas fees associated with full on-chain governance, Decentraland’s DAO uses a combination of free, off-chain voting for the community and a multi-sig wallet controlled by a “DAO Committee” to enact those off-chain decisions on the Ethereum blockchain. I'm not a huge follower of the crypto ecosystem and DAOs, but this kind of thing seems like it's pretty common.
    - localplume 4y ago
      [dead]
    - aww_dang 4y ago
      This is actually very common for the allegedly decentralized apps. A centralized service controls the actual application while some resulting data is recorded to the blockchain. Decentralized in name only, but most users don't know and those who understand are only happy to oblige the hype.
    - Shared404 4y ago
      Slightly off topic, but I quite like this video over Decentraland/the metaverse: https://www.youtube.com/watch?v=EiZhdpLXZ8Q https://www.youtube.com/watch?v=EiZhdpLXZ8Q It's an in depth look/critique.
    - miracle2k 4y ago
      There are all kinds of governance models, as there should be. > a multi-sig wallet controlled by a “DAO Committee” to enact those off-chain decisions DAOs may empower a multi-sig with certain allocated funds to spend according to a mandate. This is ok. It's like saying America is not a democracy because regulators can make new rules that congress is not voting on. It also possible to have off-chain voting, but still enforce those results on-chain using a fraud-proof like system, and some do this. Lots of design space to play with.
      - squeaky-clean 4y ago
        How do you guarantee the off-chain votes haven't been tampered with during the initial off-chain step?
      - rjbwork 4y ago
        >It's like saying America is not a democracy because regulators can make new rules that congress is not voting on. That actually does appear to be the opinion of the current supreme court, and you can expect further rulings counter to historical precedence WRT chevron deference.
- tiku 4y ago
  Depends on the chain. Lots of "better" chains than Ethereum. Some are even integrating EVM and Solidity.
- ceejayoz 4y ago
  For a rather hilarious example of this, PeopleDAO's "autonomy" turned out to be a few guys with a Google Sheet. They accidentally shared the link and someone added themselves to the payout list, to the tune of $120k. https://www.theblock.co/post/219214/peopledao-hacked-via-google-sheets https://www.theblock.co/post/219214/peopledao-hacked-via-goo...
rvcdbn 4y ago
By this line of reasoning wouldn’t Ethereum miners be liable too? (assuming this was all implemented on ethereum)
- houston_Euler 4y ago
  I believe miners wouldn't, because while they might technically coordinate their efforts in deciding which version of a cryptocurrency to mine, they aren't pooling their resources and representing themselves as a single entity. That's partly what makes these individuals an unincorporated organization.
- rocqua 4y ago
  They don't cooperate for profit, they compete with eachother. Everyone in a mining (or staking) pool seems more likely to count as a general partnership.
- latchkey 4y ago
  ETH no longer has miners since the switch to PoS. There are now stakers, validators, liquid staking tokens, block builders, ... it has gotten a lot more complex than it was before.
- olliej 4y ago
  What? Why would they be liable? The whole point is the liability in a partnership is shared between the partners: that is the entities that own the partnership. Miners (staker?) aren't partners in the DAO: being a miner doesn't make you an owner of anything, anymore than being an employee or contractor to a partnership in the real world would make you liable for the actions of your employer/client.
luckylion 4y ago
Why would it be difficult to enforce individual liability? The DAO needs to interact with the outside world somehow, pay bills and get paid etc, and distribute income to members, so you can just follow the money, can't you?
- orbz 4y ago
  Jurisdiction of the enforcing party must have overlap with the individual members targeted. In practice I would expect any member under that jurisdiction would bear full responsibility of the actions of any of the collective members.
- WorldMaker 4y ago
  If you assume a DAO is de facto a corporation/partnership (as this court decision suggests), most US States (including California, which is relevant to this specific case) and many countries start from an unlimited, collective liability default for corporations/partnerships and limited liability is the properly registered (and taxed!) opt-in. (The article also points to states that are not California that realize this and have started to offer easy LLC opt-in for DAOs. Presumably in part because it is a potential tax revenue source.) [IANAL, but this is fascinating.]
  - olliej 4y ago
    It is an organization, there is no question there. The question is whether it is a general partnership or not, and by the rules listed it would appear to be. Collective ownership implying collective liability is not novel or new, and existed long before LLCs and LLPs did. Legislation allowing those is relatively recent because it has obvious benefits, but comes at the cost of some degree of regulation. In the true crypto spirit of "regulation == bad" this DAO took the path of not making itself an LLC or LLP (and in fact explicitly terminated the LLC), which means it seems fairly obvious that it's a general (e.g. unlimited liability) partnership as the court appears to be concluding.
- _navierstokes 4y ago
  Sometimes you can't follow the money, because the DAO members can use privacy tools to hide the coins, similar to what Tornado Cash allowed you to do.
ARandumGuy 4y ago
Whenever an organization does something, someone or something has liability. If you don't go through the process to create an LLC, that someone is the members of the organization. Liability doesn't go away just because you organize via a blockchain.
- tiku 4y ago
  If the actions are done by code or an AI, who is liable?
  - yifanl 4y ago
    Whoever made the decision was it to implement them as an actor, most likely?
    - majormajor 4y ago
      Yeah, booby traps are the first example I can think of illegal automation that comes to mind where the property owner is liable. Setting up something and not pulling the trigger yourself doesn't absolve you.
    - JumpCrisscross 4y ago
      > Whoever made the decision was it to implement them as an actor, most likely? Directly, the holders of the DAO tokens. That’s what this case is about. Those holders may have further claims against the people who implemented the code or AI. But the liability begins with the general partners, i.e. holders of the governance tokens. Will be interesting to see the first judgements enforced against holders of a DAO.
      - deleted 4y ago
        [deleted]
  - vkou 4y ago
    The people who own it. Which, in this case, are the bag-holders. Looks like there are benefits to having a real corporation, instead of trying to re-invent corporate governance from scratch, without any input from the courts...
nico 4y ago
How would it work for non-US DAOs?
- lcnPylGDnU4H9OF 4y ago
  If the DAO is very explicit about non-US residents, they should also be able to show that in court, and it could be determined that the US citizens who ignored that waived any protections the court would otherwise offer. Alternatively, it might instead be that the DAO should have done more to ~spy on~ "know" their customers so they could determine that they're not serving US citizens.
  - 8note 4y ago
    The US could still argue that there's a US nexus in that the tokens are converted to US dollars
jcranmer 4y ago
> Enforcement will be the interesting part. If a DAO has anonymous members and no LLC or corporate structure associated with it, then a court can rule that the members are liable, but it could be very difficult to enforce that liability. The default form of legal structure for a cooperating group of people is general partnership--unless you take specific legal steps to avoid forming a general partnership, that is how the courts will view the partnership. General partnerships means that all partners are jointly and severally liable. In layman's terms, that means you just have to find one person involved in the DAO, and sue them, and then you get to collect the full judgement from that person (alone), and it's now their problem to get cooperation from the other partners for the liability. (If this sounds like a terrible idea, it is. That's why there exists all sorts of fancy legal structures that avoid putting people in this position. But if you're not going to use any of them, you get the terrible idea instead!)
- MichaelZuo 4y ago
  So a single individual who participated in the Bitcoin network would be viewed as ' jointly and severally liable' for the entire network?

AlexandrB 4y ago

Many of them don't even coordinate their activities via blockchain because it's too slow and expensive[1]. [1] https://www.banklesstimes.com/news/2023/03/08/off-chain-governance-strikes-a-chord-with-daos-as-77percent-of-them-favor-it-over-any-other-form/ https://www.banklesstimes.com/news/2023/03/08/off-chain-gove...

zoklet-enjoyer 4y ago
Governance activities are talked about on forums and chatrooms. Governance is voted on on-chain Edit: I'm posting too fast, so here's an edit for a reply I don't know anything about Ethereum DAOs. Check out Tendermint chains (Cosmos, Osmosis, Crescent, Stargaze, EVMOS, Kava). Gas is cheap and all voting is on-chain. Governance discussions happen mostly on a forum called Commonwealth and then they're put on chain and voted on by validators and stakers.
- AlexandrB 4y ago
  Except when it's not: https://docs.decentraland.org/player/general/dao/overview/how-does-the-dao-work/ https://docs.decentraland.org/player/general/dao/overview/ho... > To circumvent the very high gas fees associated with full on-chain governance, Decentraland’s DAO uses a combination of free, off-chain voting for the community and a multi-sig wallet controlled by a “DAO Committee” to enact those off-chain decisions on the Ethereum blockchain. I'm not a huge follower of the crypto ecosystem and DAOs, but this kind of thing seems like it's pretty common.
  - localplume 4y ago
    [dead]
  - aww_dang 4y ago
    This is actually very common for the allegedly decentralized apps. A centralized service controls the actual application while some resulting data is recorded to the blockchain. Decentralized in name only, but most users don't know and those who understand are only happy to oblige the hype.
  - Shared404 4y ago
    Slightly off topic, but I quite like this video over Decentraland/the metaverse: https://www.youtube.com/watch?v=EiZhdpLXZ8Q https://www.youtube.com/watch?v=EiZhdpLXZ8Q It's an in depth look/critique.
  - miracle2k 4y ago
    There are all kinds of governance models, as there should be. > a multi-sig wallet controlled by a “DAO Committee” to enact those off-chain decisions DAOs may empower a multi-sig with certain allocated funds to spend according to a mandate. This is ok. It's like saying America is not a democracy because regulators can make new rules that congress is not voting on. It also possible to have off-chain voting, but still enforce those results on-chain using a fraud-proof like system, and some do this. Lots of design space to play with.
    - squeaky-clean 4y ago
      How do you guarantee the off-chain votes haven't been tampered with during the initial off-chain step?
    - rjbwork 4y ago
      >It's like saying America is not a democracy because regulators can make new rules that congress is not voting on. That actually does appear to be the opinion of the current supreme court, and you can expect further rulings counter to historical precedence WRT chevron deference.
tiku 4y ago
Depends on the chain. Lots of "better" chains than Ethereum. Some are even integrating EVM and Solidity.
ceejayoz 4y ago
For a rather hilarious example of this, PeopleDAO's "autonomy" turned out to be a few guys with a Google Sheet. They accidentally shared the link and someone added themselves to the payout list, to the tune of $120k. https://www.theblock.co/post/219214/peopledao-hacked-via-google-sheets https://www.theblock.co/post/219214/peopledao-hacked-via-goo...

rvcdbn 4y ago

By this line of reasoning wouldn’t Ethereum miners be liable too? (assuming this was all implemented on ethereum)

houston_Euler 4y ago
I believe miners wouldn't, because while they might technically coordinate their efforts in deciding which version of a cryptocurrency to mine, they aren't pooling their resources and representing themselves as a single entity. That's partly what makes these individuals an unincorporated organization.
rocqua 4y ago
They don't cooperate for profit, they compete with eachother. Everyone in a mining (or staking) pool seems more likely to count as a general partnership.
latchkey 4y ago
ETH no longer has miners since the switch to PoS. There are now stakers, validators, liquid staking tokens, block builders, ... it has gotten a lot more complex than it was before.
olliej 4y ago
What? Why would they be liable? The whole point is the liability in a partnership is shared between the partners: that is the entities that own the partnership. Miners (staker?) aren't partners in the DAO: being a miner doesn't make you an owner of anything, anymore than being an employee or contractor to a partnership in the real world would make you liable for the actions of your employer/client.

luckylion 4y ago

Why would it be difficult to enforce individual liability? The DAO needs to interact with the outside world somehow, pay bills and get paid etc, and distribute income to members, so you can just follow the money, can't you?

orbz 4y ago
Jurisdiction of the enforcing party must have overlap with the individual members targeted. In practice I would expect any member under that jurisdiction would bear full responsibility of the actions of any of the collective members.
WorldMaker 4y ago
If you assume a DAO is de facto a corporation/partnership (as this court decision suggests), most US States (including California, which is relevant to this specific case) and many countries start from an unlimited, collective liability default for corporations/partnerships and limited liability is the properly registered (and taxed!) opt-in. (The article also points to states that are not California that realize this and have started to offer easy LLC opt-in for DAOs. Presumably in part because it is a potential tax revenue source.) [IANAL, but this is fascinating.]
- olliej 4y ago
  It is an organization, there is no question there. The question is whether it is a general partnership or not, and by the rules listed it would appear to be. Collective ownership implying collective liability is not novel or new, and existed long before LLCs and LLPs did. Legislation allowing those is relatively recent because it has obvious benefits, but comes at the cost of some degree of regulation. In the true crypto spirit of "regulation == bad" this DAO took the path of not making itself an LLC or LLP (and in fact explicitly terminated the LLC), which means it seems fairly obvious that it's a general (e.g. unlimited liability) partnership as the court appears to be concluding.
_navierstokes 4y ago
Sometimes you can't follow the money, because the DAO members can use privacy tools to hide the coins, similar to what Tornado Cash allowed you to do.

ARandumGuy 4y ago

Whenever an organization does something, someone or something has liability. If you don't go through the process to create an LLC, that someone is the members of the organization. Liability doesn't go away just because you organize via a blockchain.

tiku 4y ago
If the actions are done by code or an AI, who is liable?
- yifanl 4y ago
  Whoever made the decision was it to implement them as an actor, most likely?
  - majormajor 4y ago
    Yeah, booby traps are the first example I can think of illegal automation that comes to mind where the property owner is liable. Setting up something and not pulling the trigger yourself doesn't absolve you.
  - JumpCrisscross 4y ago
    > Whoever made the decision was it to implement them as an actor, most likely? Directly, the holders of the DAO tokens. That’s what this case is about. Those holders may have further claims against the people who implemented the code or AI. But the liability begins with the general partners, i.e. holders of the governance tokens. Will be interesting to see the first judgements enforced against holders of a DAO.
    - deleted 4y ago
      [deleted]
- vkou 4y ago
  The people who own it. Which, in this case, are the bag-holders. Looks like there are benefits to having a real corporation, instead of trying to re-invent corporate governance from scratch, without any input from the courts...

nico 4y ago

How would it work for non-US DAOs?

lcnPylGDnU4H9OF 4y ago
If the DAO is very explicit about non-US residents, they should also be able to show that in court, and it could be determined that the US citizens who ignored that waived any protections the court would otherwise offer. Alternatively, it might instead be that the DAO should have done more to ~spy on~ "know" their customers so they could determine that they're not serving US citizens.
- 8note 4y ago
  The US could still argue that there's a US nexus in that the tokens are converted to US dollars

jcranmer 4y ago

> Enforcement will be the interesting part. If a DAO has anonymous members and no LLC or corporate structure associated with it, then a court can rule that the members are liable, but it could be very difficult to enforce that liability. The default form of legal structure for a cooperating group of people is general partnership--unless you take specific legal steps to avoid forming a general partnership, that is how the courts will view the partnership. General partnerships means that all partners are jointly and severally liable. In layman's terms, that means you just have to find one person involved in the DAO, and sue them, and then you get to collect the full judgement from that person (alone), and it's now their problem to get cooperation from the other partners for the liability. (If this sounds like a terrible idea, it is. That's why there exists all sorts of fancy legal structures that avoid putting people in this position. But if you're not going to use any of them, you get the terrible idea instead!)

MichaelZuo 4y ago
So a single individual who participated in the Bitcoin network would be viewed as ' jointly and severally liable' for the entire network?