DAOs Are Transforming Corporations: A Call for Legal Adaptation | Opinion

If regulators step up, DAOs could evolve into the next layer of the global economy — open, borderless, and accountable by design

The rise of decentralized autonomous organizations (DAOs) is reshaping how we think about corporations, yet many legal systems struggle to accommodate them. DAOs present exciting opportunities for collective ownership and transparency but face significant challenges due to their lack of legal recognition. As these organizations grow, there is a pressing need for the law to evolve to properly govern them.

Key Takeaways

DAOs manage over $20 billion in liquid assets but lack legal recognition.
Current laws are inadequate for organizations structured like DAOs without traditional leadership.
DAOs encourage collective ownership but may suffer from accountability issues.
Regulatory frameworks need to adapt to ensure DAOs can operate effectively and responsibly.
Potential solutions include rethinking fiduciary obligations and establishing a “DAO passport” for legal consistency.

The Promise and Challenges of DAOs

Decentralized Autonomous Organizations (DAOs) are not just a passing trend; they boast over $20 billion in liquid assets. However, they present a unique challenge to legal systems that are not structured to recognize them. Without CEOs, headquarters, or a legal identity, DAOs defy the traditional definitions used by courts and regulators.

As DAOs become more widespread, the law must evolve to accommodate these modern forms of organization. This leads to the critical question: what constitutes an “organization” in today’s digital landscape? Furthermore, can accountability be maintained in systems driven by code?

At their core, DAOs aim to foster transparency, speed, and shared ownership. Anyone with internet access can suggest ideas or vote, allowing governance processes to be more open than those of traditional companies. This accessibility lowers barriers and enables greater coordination without the need for managers.

However, the very characteristics that enhance the efficiency of DAOs also expose a significant flaw. While token holders may consider themselves owners, they lack any legal standing—meaning DAOs cannot sign contracts, pay taxes, or shield members from personal responsibility.

This lack of accountability can lead to a situation where actual community ownership becomes superficial. In practice, those who speak the loudest or have the most wealth dominate discussions, overshadowing the broader community. As community participation wanes, so does trust, innovation, and the original promise of collective governance.

Navigating Regulatory Complexities

To address these regulatory challenges, many DAOs have adopted aspects of traditional corporate structures. Some register as Limited Liability Companies (LLCs), while others establish foundations. Certain jurisdictions, like Wyoming and the Marshall Islands, allow DAOs to be recognized as unique entities. These legal frameworks enable DAOs to sign contracts, manage assets, and pay vendors, much like any conventional business. However, they can create complications down the line.

Legal frameworks often conflict with on-chain rules, forcing communities to choose between adhering to code or complying with regulations. This challenge intensifies when teams operate across multiple jurisdictions, as the same DAO may then be subject to various regulatory environments, tax laws, and possibly conflicting definitions.

This results in a fragmented legal landscape that not only increases costs across different jurisdictions but also pushes crucial decisions off-chain to a select few. Consequently, smaller teams may find themselves sidelined, and users may experience decreased transparency.

A real-world example of these challenges is found in Uniswap’s recent “DUNI” proposal, which allocates $16.5 million for taxes and legal defense, despite an anticipated IRS liability of under $10 million. Larger DAOs can navigate these costs, but smaller ones struggle, resulting in delayed projects and limited participation for U.S.-based users. Therefore, compliance can stifle innovation and slow down the adoption of DAO models altogether.

What Lies Ahead for DAOs?

Going forward, the legal landscape must adapt for DAOs to grow beyond experimental phases. The establishment of a regulatory framework tailored to decentralization is essential.

One potential solution is to redefine fiduciary responsibilities in a way that suits the digital era. By designating a “digital fiduciary” in each DAO—an accountable figure embedded within code and recognized legally—there would always be someone to take responsibility when issues arise. This would dramatically shift the focus of trust from mere reputation to clearly defined accountability.

Another proposal is the creation of a standardized “DAO passport” that sets minimum requirements for transparency, liability protections, and dispute resolutions across borders. Such a framework would prevent the need for DAOs to reconstruct their legal frameworks every time they enter a new market.

Ultimately, the future of DAOs hangs in the balance. If legal systems fail to adapt, these organizations risk remaining tools for a select few insiders. Yet, with proactive regulatory measures, DAOs could evolve into a cornerstone of an open, borderless, and accountable global economy.