Drew Hinkes Profile picture
Jun 26, 2022 28 tweets 12 min read Read on X
#Dao is another word the #crypto industry uses for ...well... anything. Here's a proposed taxonomy to clarify what we mean when we say #Dao: (a quickie sunday am #thread): /1
@VitalikButerin's seminal work discussing the types of human/tech hybrid ventures that may/will be created using censorship resistant technology tools remains the first stop for this discussion: (blog.ethereum.org/2014/05/06/dao…) /2
@vitalik observes that a #DAO "has the murkiest definition of all... it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do." /3
Buterin notes two key factors: 1. the code itself controls valuable capital, and 2. the code itself makes decisions about the use of that valuable capital. He name checks #bitcoin and #namecoin as maybe close to being DAOs. /4
I'd posit that we probably don't have any Buterin DAOs yet; we have webs of smart contracts that control capital, but we don't have **autonomous** smart contracts that control capital. /5
so...what do we have? Lets move on to the second type of #DAO, which i'll call an Alegal Dao. These are collaborations to manage powers over digital assets using technology tools. These words are chosen carefully. /6
who is collaborating? it could be anyone or anything. People, entities, smart contracts acting for people or entities, or smart contracts (maybe) acting autonomously, or other Daos of various stripes. /7
they are collaborating to manage powers over digital assets. why powers and not rights? now for a quasi-scholarly digression..../8
I distinguish powers/ rights based on the source. Powers are what you can do because of rules implemented n technology systems. An example is a piece of code that allows a user to elect to send value to another address. A user of that code has the power to send that value.
Rights are powers granted by a legal system and which may be vindicated or enforced by that legal system. A right is backstopped by legal authority. An example is the right given to Americans under the First Amendment to speech without prior governmental restraint.
thus, in systems, participants may have powers as defined by what the code allows a participant to do; the law may or may not grant that participants any right to do what code allows. /11
the apocryphal example is #TheDao attack; the attacker used code that exploited the recursive call bug in the split contract; the attacker had the power to do so, but may not have had the right to assert control over the assets that were moved into the attacker's subdao. /12
why digital assets? what about IRL assets? Alegal Daos are not generally incorporated under the law of any jursidiction, which means they lack legal personhood and have a hard time interacting with legally organized entities. /13
that means they have difficulty handling legal property that requires physical posession, & difficulty interacting with entities that require a legal counterparty to transact; in many cases they must use a legal entity to interact w/incorporated entities to control property. /14
this problem is significant; it impacts how #alegaldaos can get legal advice (who's my client?), how they can hire people to work for them, and limits how they can use their assets. /15
Some legal systems have kluges that try to create some interface for unincorporated groups, or recognize unincorporated groups for limited purposes (or give regulators/ executive enforcement agencies the legal power to act against unincorporated groups) /16
There are few elegant solutions here. The result is that #AlegalDaos have recurring problems interfacing w/ legal entities. For more on the various strategies to "wrap" #AlegalDaos in legal entities, check the recent work by @RSSH273 & @ChrisBrummerDr /17
and we haven't even gotten to liability yet. Because #AlegalDaos are not incorporated, if the Dao takes on liability to anyone else (an aggrieved collaborator, or a third party) that other party may try to use legal power to recover against the #AlegalDao /18
thus a legal actor will be asked to make sense of an #AlegalDao; the result may be that all participants are jointly/severally liable (See early discussion from #THEDAO era by @stephendpalley, me, others) as joint venturers and or general partners /19
this would generally result in bad outcomes, push members to default to anonymous use, and create many bad outcomes for the #AlegalDao itself, as i discuss here: jcl.law.uiowa.edu/sites/jcl.law.… /20
despite these complexities and the second order issues they create, #AlgealDaos have been very popular way to distribute and decentralize control over a protocol, or over decisionmaking over a venture. /21
the third type of #DAO is a #LegalDao which are legally incorporated entities managed by technology tools.A few examples include @awrigh01's #theLao and the @VENTURE_DAO. /22
although several jursidictions have created specific laws to enable the creation of DAOs as legal entities (Malta, Vermont, Wyoming etc...) most of these laws are glosses on existing entity law that are meant to encourage formation in that state/jurisdiction. /23
Wyoming's DAO law, for example, allows for the formation of a highly stylized version of its LLC, with some really interesting features (i.e. the ability to have members identified only by public key address etc...) sos.wyo.gov/Business/Docs/… /24
at their core, however, these #LegalDaos are still legal entities subject to all benefis and burdens that apply to incorporated entities; they can enter contracts shield their members from liability, but have to pay taxes, and may be held liable for violations of law. /25
members of #alegaldaos can argue that their venture has no cental point of control and thus no central point of liability; #LegalDaos can't make that argument. /26
thus, #AlgealDaos may be more flexible than #LegalDaos for some purposes, but i'd caution the reader that these theories have yet to be tested by courts and remain very much conjectural.
In closing, the entire industry would benefit from better nomenclature writ large; hopefully this discusion of #ButerinDaos, #AlegalDaos and #LegalDaos helps clear up some of the ambiguity. Got questions? comments? DM's are open!

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Drew Hinkes

Drew Hinkes Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @propelforward

Jun 19
On the #ETH declination letter () received by @Consensys. Declination letters are rare & to be savored. Congrats to the team behind this! But what does this mean for staking? For other POS systems and their assets? Time for some educated speculation /1
The letter indicates 2 things. 1. that the investigation captioned "In the Matter of Ethereum 2.0 (C-08950)" is "concluded," and that 2. the SEC "do[es] not intend to recommend an enforcement action [against Consensys] with respect to this investigation" These are both great /2
However (that's the fancy version of "but"), this does not mean that all questions as to staking are resolved, that all questions that may apply to other POS tokens are likewise off the table, that other investigations are not ongoing, /3
Read 4 tweets
Feb 19, 2023
#Illinois Senate Bill SB1887 would drive out #blockchain #node operators, #miners, and #validators, waste judicial resources, and confuse existing law in a quixotic attempt to protect Illinois consumers. Let's examine the mess in a #thread:
as a preface, This is a stunning reverse course for a state that was previously pro -innovation. Instead we now get possibly the most unworkable state law related to #crypto and #blockchain I’ve ever seen. A shocking turn of events for the #tech community in #illinois /2
SB1887 focuses on consumer protection (this is GOOD). But, the manner in which it seeks to protect consumers is to require #node operators ##miners & #validators to do impossible things, or things that create for themselves new criminal & civil liability at pain of fines/ fees /3
Read 22 tweets
Sep 22, 2022
CFTC brings first regulatory action against an alegal #DAO, charging #OokiDao with operating an unlicensed FCM; seeking disgorgement, restitution, civil moneyary penalties, trading and registration bans and injunctive relief. Lots to talk about here: /1 cftc.gov/PressRoom/Pres…
allegations in claim against Ooki #Dao characertize it as an "unincorporated association comprised of holder of Ooki Tokens" and legacy BZRX Tokens who have voted those tokens to govern (e.g. to modify, operate market and take other actions w/r/t the Oooki Protocol." /2
This a huge distinction. While the #DAO is itself a named party, it is unincorporated which leads to all sorts of material questions about who can be sued for what. In this case the complaint makes clear that the Dao is those who (a) have tokens and (b) have voted to govern. /3
Read 17 tweets
Aug 17, 2022
Important questions for those who may have received blocked property in a #grief #spray #spam attack from blocked #tornadocash #ETH addrsses remain unanswered. #OFAC may give clarity in an FAQ; are a few questions that would be helpful for OFAC to address.1st some background/1
By now all of #crypto knows that #OFAC sanctioned #ETH & #USDC addresses related to #Tornadocash and service providers and many #crypto users are struggling to adapt. Why? /2
We’re dealing with a law designed to regulate legal people & entities, &their property, not quasi-autonomous code used by third parties to transact third party assets to others. Arguably the designation exceeds #OFAC’s statutory authority. That’s an argument for another day. /3
Read 23 tweets
Jun 8, 2022
#NYDFS issues USD backed #stablecoin guidance; must be fully backed by an asset reserve; issuer must adopt a clear redemption policy, approved by DFS in writing (!!!) redemption at par in fiat; reserve must be held in custody with /1
dfs.ny.gov/reports_and_pu…
US state/federally chartered depository institutions and/or asset custodians. Reserve must be held in govt treasuries "subject to DFS- approved reqs re: overcollaterialiation." Reserve must be subject to independent audit 1x month by independent CPA under AICPA attestation /2
standards. DFS may also impose obligations regarding cybersecurity and IT standards and evaluate issuer BSA/AML & Sanctions compliance, safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable on Issuers. /3
Read 10 tweets
Feb 14, 2022
Take aways from the #blockfi settlement with the #SEC (sec.gov/litigation/adm……) 1. BIA were notes under the Reves test; one factor is that there is "no alternative
regulatory scheme or other risk reducing factors exist with respect to BIAs" Congress can of course, set out a /1
an alternative framework that would potentially push these sorts of ventures into a different regulatory classification. 2. the offer and sale of notes is an investment contract. Yes, you can be debt and an investment contract; the pooling of assets is the key factor here. /2
3. Blockfi was a 40 act company; 40% of its assets were investment securities - including loans. /3
Read 6 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(