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DAOs

The term DAO(Decentralized Autonomous Organization) was coined in 2014 by the Russian-Canadian programmer Vitalik Buterin to refer to those human organizations whose internal functioning and ways of operation take place exclusively in cyberspace, in a completely autonomous way from any state legal order .

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Currently, a DAO defines a group of people who agree to manage a pool of cryptoassets using smart contracts on Ethereum, Polygon, Binance or any other blockchain equipped with a virtual machine with a Turing-complete instruction set (i.e. with maximum computational capacity). DAOs would thus be the cyber equivalent of figures such as legal entities, trusts or separate estates.

Typically, DAOs are structured into four different smart contracts:

-An ERC20 contract (or a similar standard, such as BEP-20 at Binance), which issues fungible tokens analogous to stocks or shares in limited partnerships. These assets, called governance tokens, grant voting rights in the company.
-Thegovernor contract performs (in an algorithmic and automatic way) the management and administration of the DAO. Governance token holders submit spending proposals to the governor, who votes on them. In the blockchainsblockchains, declarations of will of subjects can be issued either by individuals (external users) or by the smart contracts themselves. These declarations of will are articulated through transactions. A transaction can be defined as a message that one blockchain account sends to another. This message may include money, which will be subtracted from the balance of the sending account and subtracted from the receiving account, or it may signal the function of a smart contract hosted in the target account that is intended to be invoked. In DAOs, partners (defined as governance token holders) propose transactions to the governor. In each proposal, the partner must indicate the function of the smart contract to be executed, the account in which it is hosted, as well as the amount of cryptocurrencies to be transmitted for this purpose. If the proposal is approved, the governor issues a payment order to the treasury contract.
-Thetreasury contract is the one that holds the DAO's funds, which are disposed of through transactions ordered by the administrator contract.
-Thelockdown contract imposes a sort of time limit between the approval of the proposal by management and its execution by the treasury. It acts as a sort of intermediate element between the two. Each time a vote is successful, the administrator contract sends the blocking contract a message (transaction) with the approved proposal. The blocking contract forwards it to the treasury contract.

A purely cyber DAO, which exists only within the scope of a blockchainhas no legal personality, insofar as the latter is granted exclusively by law. Therefore, if we intend for a DAO to have the same legal capacity and capacity to act as a commercial company, it is necessary to invest it with a sort of legal wrapper (legal wrapper), which assigns it a corporate form provided for by law, so that through the latter it can act in the legal physical world. Broadly speaking, the tokens tokens would play the same role as shares, while the governing contract would perform the functions of the corporate bodies, particularly the directors.

The legislation of the different member countries of the European Union opens up different possibilities. In my opinion, the biggest stumbling block for setting up commercial companies through DAOs would be in the area of shares, and particularly in the documentation and transfer of these shares.

The fungibility of governance tokens prevents the incorporation of metadata that identifies their holders, thus failing to comply with the identification requirements ("KYC policy) required by both corporate law and legislation relating to the prevention of money laundering. For this reason, in our opinion, any system of onchain representation of company shares should be based on NFTs, whose metadata would contain the first and last names of the unitholders, as well as their national identity document. The NFTs would contain a multi-signature transmission mechanism, so that in order to transfer them to third parties, two digital signatures would be necessary: that of the current holder and that of the administrator, who would first identify the acquirer of the token by means of his digital certificate or by reading and scanning his ID card.

As regards the transfer of shares, Article 106 of the Spanish Capital Companies Act requires that they be recorded in a public document and, therefore, seems to require notarial intervention. On the contrary, in Portugal, Article 228.1 of its Commercial Companies Code requires the simple written form for the transfer of shares in companies limited by shares ( the Portuguese equivalent of limited companies), a written form to which the electronic form can be assimilated by virtue of the provisions of Article 25.2 of the eIDAS Regulation. Nothing would therefore prevent, under Portuguese law, the keeping of a book-register of partners by a smart contract, the representation of the partnership shares by nft as well as the transmission of the same through transactions on a blockchain. If the company is a public limited company, the DLT Regulation (which will enter into force throughout the European Union) allows in its article 3 the documentation in distributed protocols of shares of public limited companies whose market capitalization does not exceed 500 million euros.

Another limitation imposed by the onchain nature of DAOs is the impossibility for them to order payments with fiat money through ordinary bank transfers. In principle, the onchain (machine state of the blockchain) and offchain (the ordinary physical space, where ordinary legal rules and subjective rights are in force) are watertight compartments, with no communication between them, except for transactions ordered by external users. However, since 2014 in many distributed protocols, a special type of nodes, called oracles, have been developed that are specialized in injecting into the blockchain information coming from the outside, establishing a sort of communication channel between the two domains. One of the most prominent oracle companies, Chainlink, has reached an agreement with SWIFT so that from a given blockchain transfers can be ordered between two given bank accounts. Thus, if this project is implemented, not only cryptocurrency transaction proposals but also fiat money spending proposals articulated through ordinary bank transfers could be put to a vote. As an alternative mechanism to the one offered by Chainlink, the following could be considered: Administrators would have a personal account opened on Ethereum, Polygon or Binance, and would be obliged to transform into fiat money all stablecoins (USDC, USDT) sent to them. The message would include the IBAN to which the transaction should be made, as well as the concept.

Finally, Article 28 of the Spanish Corporate Enterprises Act, although it recognizes the principle of shareholders' autonomy, subjects it to limitations relating to the type of company chosen:

"the deed and the bylaws may also include all the covenants and conditions that the founding partners deem appropriate to establish, provided that they do not oppose the laws or contradict the principles that shape the chosen type of company".

The founders of a company do not, therefore, have complete freedom in the internal configuration of the legal entity, but must respect the rules relating to the configuration of the basic bodies of the same, particularly everything relating to the functioning of the General Meeting, the administrative body or the preparation of the annual accounts. It is not possible, therefore, to replace the general meeting of shareholders of a limited liability company with simple periodic votes carried out online through a smart contract.

As we have seen in the preceding articles, the phenomenon of decentralized autonomous organizations, originally born in an exclusively cybernetic environment, is still difficult to fit into the legal systems of the Eurozone. However, the adoption of the DLT y MiCAregulations, as well as the various legislative reforms underway in some European countries, promise to open up wide-ranging possibilities in this area.

DAOs are structured into four different smart contracts:

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