Decentralized Autonomous Organizations (DAOs): Challenges of Qualification and Choice of а Law Applicable

Abstract

Decentralized Autonomous Organizations (DAO) are becoming increasingly popular in the Internet space, and with it the recognition in the legal systems of various states. This process is primarily associated with development of the crypto-industry, legalization of mining, including in Russia. The mining can be carried out by entities both independently and by joining mining pools, which have a nature similar to a DAO. The distinctive feature of these organizations is the decentralized nature of management and functioning processes, in which almost all participants of the network community are involved. The activity of DAO is of a cross-border nature, which allows to consider it as a specific subject of private international legal relations. This legal phenomenon requires a separate study of such problems in the PIL as the qualification of DAOs and the resolution of the subsidiary conflict of laws question, as well as the formulation of the main approaches to the choice of applicable law. On the basis of comparative-legal and formal-legal methods the following qualifying features of DAOs are identified and considered: digital form of corporate legal relations, decentralization, autonomy, confidentiality and subordination to lex cryptographica. The optimal solution to the subsidiary conflict of laws question is to qualify the DAO under the law of the country where it was created. If it is impossible to establish the place of the creation of the DAO, then its qualification by lex forum is permitted. The choice of the competent law depends on the type of DAOa. Traditional conflict of laws principles would apply to digital legal entities and legally constituted elements of a hybrid DAO. The law applicable to a “pure” DAO is proposed to be the law governing the underlying agreement between the participants of the network community. Taking into account these approaches, the author attempts to determine the legal status of DAOs and their conflict of laws regulation from the point of view of Russian private law. The DAO is correlated with such corporate forms known to the law as simple partnership, social organization without the status of a legal entity and civil law community.