Several DAOs are turning to legal structures to overcome regulators asking “tough questions” about their legal liability. SushiSwap now has a new three-part legal structure for its DAO and developer team. Gnosis’ SafeDAO implemented a Snapshot proposal to limit the liability of SafeDAO participants if the DAO ever gets in legal trouble. And Uniswap has come up with a foundation for a clearer view of who is behind the DAO.
This shows that decentralized autonomous organizations (DAO) have taken the legal road to get ahead of any compliance issues that they might experience. Analysts believe that the legally compliant DAO era could be sped up when the decision is reached in CFTC’s case against Ooki DAO for running an unregistered derivatives exchange. This case is a first-of-its-kind by regulators against a DAO. It’s seen as a warning to others in the space that they should step up their compliance efforts.
Mike Wawszczak, general counsel at Alliance, explained that as regulators’ patience with DAOs runs thin, many buildings in DeFi are running to whatever structures they can find to protect themselves. But the legal structures can lead to the centralization of DAOs. Wawszczak described it as a shame because decentralization is the whole point. However, DAOs turning to legal structures should be a relief for DAO users or participants. Michael Selig, a crypto lawyer, said legal wrappers provide some degree of comfort relative to a regime less DAO. He added that as crypto builds a financial system from the ground up, DAOs are discovering a new building block of modern corporations, the limited liability corporation (LLC).
Brian Frye, a law professor at the University of Kentucky, outlined that when corporations emerged as business structures, the key feature of an organizational structure that was appealing from the perspective of capital formation was a limited liability. He said the dominant legal organizational form is actually the LLC at this point.