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Seth C. Oranburg

Law professor and scholar researching how technological disruption destabilizes moral norms and social trust, and how legal design can restore integrity to markets and institutions.

Decentralized Autonomous Organizations (ÐAOs)

Learning Objectives

In this chapter, students will learn to:

Code, Capital, and the Challenge to Entity Law

Business law exists to solve a familiar problem: how can people organize to pursue a shared goal over time, while managing risk, allocating authority, and avoiding personal liability? The law answers with entity forms. Corporations, partnerships, and LLCs allow groups to act as a single legal person, to pool capital and labor, and to establish rights and obligations that bind participants and protect outsiders. These forms rely on structure: charters, bylaws, operating agreements, boards of directors, and managers.

Decentralized Autonomous Organizations (ÐAOs) propose a different solution. Instead of forming by filing documents with a state, a ÐAO is created by deploying a smart contract to a blockchain. Its governance rules are executed by software. Its participants vote with tokens, not shares. There are no directors, no officers, and often no legal entity. The ÐAO’s code defines how it operates. Participation is open to anyone who holds the relevant token.

Even without legal formalities, ÐAOs perform many of the same functions as traditional business organizations. They raise funds, hold assets, disburse payments, coordinate development, and enforce internal rules. Some contract with vendors. Some run financial markets. Some have caused major economic harm. Whether or not they are recognized as legal entities, ÐAOs engage in activities that law cannot ignore.

The legal system is beginning to respond. Some states, such as Wyoming and Utah, have created statutes allowing ÐAOs to register as limited liability entities. These laws attempt to match legal form to technical function. At the same time, federal agencies have brought enforcement actions against ÐAOs that operate without registration, alleging violations of securities, commodities, and consumer protection laws.

ÐAOs are not just a new kind of enterprise; they are a new way of organizing human behavior. They challenge legal assumptions about formation, personhood, governance, liability, and control. They prompt courts and lawmakers to confront questions at the edge of doctrine: Can an organization exist without a charter? Who is liable when code executes a transaction? Is voting on a blockchain the same as corporate control?

This chapter explores those questions through the lens of business organization law. It examines how ÐAOs are formed, how they govern themselves, and how law assigns responsibility for their actions. It also surveys the statutes that attempt to accommodate ÐAOs within existing frameworks—and asks whether a more fundamental shift in legal thinking may be required.

” ÐAOs allow us to very quickly prototype and experiment with… organizational governance.”— Vitalik Buterin, "DAOs, DACs, DAs and More: An Incomplete Terminology Guide," Ethereum Foundation Blog (May 6, 2014)

A ÐAO may be deployed with no legal filing, no formal agreement, and no identified leadership. Yet when a ÐAO acts—by raising funds, controlling assets, or distributing rewards—it may resemble a business organization in all but name. The law must then ask: what kind of legal entity, if any, has been created?

Sidebar: A Brief History of Extra-Legal Organizations

ÐAOs are often presented as unprecedented: autonomous systems governed by code, rather than chartered by law. But history offers many examples of organizations that operated outside, or beneath, formal legal systems—often because the law failed to recognize them, protect them, or serve their goals.

Pirate ships in the eighteenth century operated with no formal legal status and often in defiance of national law. Yet they developed internal constitutions, elected captains, allocated shares, and enforced discipline through deliberative processes. Their legitimacy came from participation, not legal charter.

Religious communes and mutual aid societies in early America and nineteenth-century Europe often avoided incorporation, relying instead on moral authority, community enforcement, and shared codes. Their rules were binding not through law, but through shared identity and exit threats.

Civil rights organizations in the American South, such as SNCC and local freedom movements, sometimes operated informally or in legal gray zones, developing internal structures of leadership, accountability, and risk allocation without the protections of formal legal personhood.

In each case, law was either unavailable, hostile, or insufficient. Yet the need for organization persisted. These groups found ways to govern themselves, allocate resources, and act collectively—relying on norms, rituals, rules, or charismatic leadership.

ÐAOs may differ in tools and scale, but the underlying challenge is the same: how to create institutions without relying on traditional legal form. Whether smart contracts can provide what constitutions, norms, or shared struggle once supplied remains an open question.

Courts do not treat blockchain-based systems as juridical black holes. When a ÐAO lacks formal registration, judges may classify it using familiar defaults from entity law. They may treat the ÐAO as a general partnership or unincorporated association, imposing personal liability on participants who “co-own” the venture or share in its control. The consequences of these default rules can be severe: tokenholders may face joint liability for the ÐAO’s obligations or alleged violations of law.

This part explores how courts classify unregistered ÐAOs under state entity doctrines. It also examines the use of legal wrappers—LLCs, foundations, and nonprofit associations—as a strategy to obtain personhood and limit liability. Together, these materials illuminate the foundational question: what kind of legal thing is a ÐAO?

ÐAO Formation Without State Filing

When a group launches a traditional business organization, it forms a legal entity: a corporation, an LLC, or a nonprofit association. These entities must be registered with a state, and they come with built-in features like limited liability, legal personhood, and centralized governance structures.

A Decentralized Autonomous Organization, by contrast, may be formed with no state filing at all. Developers write smart contracts, deploy them to a blockchain, and invite tokenholders to participate in governance. Anyone with a compatible wallet and the right tokens may vote on proposals, approve expenditures, or direct project development.

But when something goes wrong—when funds are lost, contracts fail, or users are harmed—the law must determine whether this software-defined collective counts as an entity, and if so, which kind.

In the following case, a federal court confronted a ÐAO that operated without legal registration. The court considered whether the ÐAO could be treated as a general partnership—and whether its participants might be held jointly liable for its actions.

Sarcuni asks whether a decentralized autonomous organization—explicitly designed to operate without centralized governance or state registration—can nonetheless be treated as a general partnership under California law, solely because its participants co-owned property and shared in the profits and losses of the platform. As you read the case, consider whether the court's analysis focuses primarily on the DAO's technical architecture or on the economic substance of what its participants actually did. Does the holding that tokenholders may be personally liable as general partners reward or punish the deliberate choice to build a governance structure without legal formalities? And how should courts distinguish between a tokenholder who actively governs a DAO and one who holds tokens purely as a passive investment—does this opinion draw that line?

Sarcuni v. bZx ÐAO, 664 F. Supp. 3d 1100 (S.D. Cal. 2023)

  1. In what appears to be a case of first impression, nineteen named Plaintiffs brought this putative class action against Kyle Kistner, Tom Bean, bZeroX LLC, Leveragebox LLC…Hashed International LLC, and AGE Crypto GP, LLC…as members of a general partnership for one count of negligence.

  2. Plaintiffs allege that each Defendant is a general partner of the bZx DAO, a purported Decentralized Autonomous Organization….

  3. Plaintiffs allege they were injured by Defendants’ negligence after a developer working for the bZx DAO was successfully targeted by a phishing attack which led to the theft of $55 million in cryptocurrency….

  4. According to the FAC, the bZx DAO operated a blockchain-based software called the bZx Protocol, which offered cryptocurrency margin-trading and lending products….

  5. One possible method for governing a DeFi protocol is through a Decentralized Autonomous Organization. DAOs don’t typically take on a formal corporate structure, opting instead to distribute governance rights among persons who hold a specific governance token. Token-holders can propose and vote on actions for the affiliated DAO to take. If a proposal receives the required number of votes, the DAO adopts the proposal….

  6. In August 2021, the bZx Protocol announced plans to transition control of the Protocol from bZeroX LLC to the bZx DAO, a DAO controlled by real and legal persons holding BZRX tokens—a cryptocurrency issued by the DAO….When the transfer of control was completed…bZeroX LLC transferred all of its assets to the bZx DAO and dissolved….From that point forward, the bZx DAO and Protocol were controlled by BZRX token-holders, who became the main drivers of governance and decision making of the bZx platform….

  7. California law provides that the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership….

  8. The FAC alleges that the bZx Protocol purports to be a DAO…that lacks any legal formalities or recognition….

  9. Plaintiffs allege that given their structures and the way they operate, the bZx and Ooki DAOs are general partnerships among token-holders….

  10. The bZx DAO is controlled by those who hold the BZRX token…token-holders can both suggest and vote on governance proposals…including spending treasury funds to hire people; changing organizational goals and policies; and even distributing treasury assets to token-holders, like how corporations can authorize dividends….

  11. The Court finds the FAC plausibly alleges that the BZRX token-holders possessed governance rights over the DAO….

  12. Accepting the allegations in the FAC as true, the Court finds that Plaintiffs have stated facts sufficient to allege that a general partnership existed among the BZRX token-holders….

  13. Given this context, the Court disagrees that recognizing the bZx DAO as a general partnership would be a radical expansion and alteration of long-standing principles of partnership law….

  14. Courts do not countenance partnerships which attempt to afford all the advantages of commercial intercourse without corresponding liabilities, and an agreement which contemplates such evasion will be construed and enforced as a general partnership….

  15. For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART the Leveragebox Motion…and DENIES WITHOUT PREJUDICE the Hashed Motion. The claims against Tom Bean, bZeroX LLC, and Leveragebox LLC are DISMISSED WITHOUT PREJUDICE….

Sarcuni Notes and Questions

  1. What makes a ÐAO a “partnership”? Sarcuni ¶ 7 quotes California’s version of RUPA: a partnership exists when two or more people carry on a business for profit as co-owners—regardless of whether they intended to form one. How does the ÐAO’s lack of formal structure or legal filing affect the partnership analysis? Should subjective intent matter?

  2. Participation as “co-ownership.” Sarcuni ¶ 6 highlights control over assets, voting on development, and sharing in benefits as evidence of co-ownership. Does simply holding tokens or voting on-chain amount to “carrying on” a business? Should liability depend on the degree of involvement?

  3. Is passive governance enough? Paragraphs 10–12 show that token-holders can propose and vote on treasury use, and the Court treats those governance powers as meaningful. What kinds of contributions should qualify someone as a “partner”? Should passive investors or minimal voters face partnership liability?

  4. Personal liability for token-holders. By recognizing the DAO as a general partnership, the court exposes individual participants to joint and several liability (see ¶ 12 & ¶ 15). Is it fair to impose full personal liability on token-holders in a pseudonymous, open-access system? What concerns arise for due process and notice?

  5. Avoiding default partnership treatment. ÐAOs can adopt legal wrappers (e.g., LLCs, DUNAs, foundations) to obtain limited liability. Could bZx ÐAO have avoided this outcome by registering a ÐAO LLC or a nonprofit entity? Why might a ÐAO decline to do so?

  6. Should courts analogize ÐAOs to partnerships? Partnership law offers a ready doctrinal framework, but may not reflect the technological or social architecture of a ÐAO. Should courts continue applying existing doctrines? Or should legislatures create a new legal category to reflect how ÐAOs function?

While some ÐAOs operate without any formal legal structure, many adopt what has come to be called a “legal wrapper”—a conventional legal entity, such as an LLC, foundation, or nonprofit association, created to interface with the real world. Legal wrappers allow ÐAOs to obtain personhood under the law, limit liability for participants, and enable the organization to contract, sue and be sued, hold property, and pay taxes.

For example, a ÐAO may establish a U.S. LLC and designate its smart contracts or token governance system as the mechanism by which its managers or members make decisions. The LAO, a venture capital ÐAO, used a Delaware LLC operating agreement that delegated major governance functions to on-chain votes. Other ÐAOs have created nonprofit foundations—often in Switzerland, the Cayman Islands, or the Marshall Islands—to hold treasury funds or intellectual property on behalf of the ÐAO community. Maker ÐAO initially operated through such a foundation until it decentralized its control structure.

These legal wrappers offer a tradeoff. By registering an entity, the ÐAO can shield participants from personal liability and gain legal capacity to interact with courts and regulators. But doing so may also introduce centralization, as the wrapper must typically have identified managers, officers, or trustees—thereby reintroducing legal chokepoints that ÐAOs were designed to avoid.

Still, in cases like Sarcuni, courts have signaled that failing to adopt a legal wrapper may expose ÐAO participants to personal liability under general partnership law. As the Sarcuni court noted, “nothing prevented the bZx ÐAO...from creating a so-called ‘legal wrapper’ or real-world corporate entity to shield individual members from liability.”

Rodrigues argues that smart contracts eliminate the gap-filling function that courts traditionally perform: because blockchain code executes automatically and irrevocably, there is no “step two” in which a neutral party interprets ambiguous terms. As you read the excerpt, consider what happens when the parties’ intent and the code’s logic diverge—who, if anyone, should resolve that conflict? The DAO organizers expressly stated that the code constituted the entire agreement; does that disclaimer eliminate the role of contract law entirely, or does it merely shift the interpretive question to the code itself? And if blockchain transactions cannot be unwound, what obligations, if any, do developers owe to participants who later discover that the code did not capture their reasonable expectations?

Usha R. Rodrigues, Law and the Blockchain, [104 Iowa L. Rev. 679]{.smallcaps} (2019)

  1. A key role of contract law is to fill the gaps humans wittingly and unwittingly leave in their consensual dealings…. Some rules are default rules that the law supplies when the parties are silent…. In both cases, the pattern is the same. Step one: Either there is a dispute regarding the interpretation of a term or an unforeseen event occurs. Step two: A court determines what legal rule will fill the gap.

  2. In the blockchain, there is no step two. Step one occurs as it always has. After all, it is humans who code the contracts of the blockchain, and so gaps arise. But in the blockchain world, step two does not occur. Because the smart “contract” is code alone, there is no gap, in the sense of an entry point, for the law to step in to fill…. There is, to use my terminology, no legal intervention point.

  3. This is the case because the DAO organizers made clear that their code contained the entire agreement between the participants, including all means of enforcement…. On the blockchain, however, there is no such chance for law to intervene because by design the code is self-contained. Once the code is released into the world, its programmers can no longer unilaterally alter it—unless the widely-dispersed, anonymous blockchain community can be convinced to do so. Because of the decentralized, distributed nature of the blockchain ledger, changes in the code will be rejected unless the code itself contemplates subsequent modifications. The only possible legal intervention point is not upon the blockchain itself, but rather identifiable humans that promote blockchain enterprises and can be held liable for their workings….

  4. To illustrate the blockchain’s transformative relationship with business association law, we start with a simple observation: fundamentally, business association law fills gaps. Business association law supplies default rules that participants tailor to their needs. … But for entities organized purely on the blockchain, there are no legal intervention points for default rules to fill unless coders affirmatively create them. There is no space for default law; law has no purchase on the blockchain.

  5. The lack of a legal intervention point is a double-edged sword. The blockchain grants its entities a power that corporeally organized entities do not have—the power to avoid the dangers of partnership without resorting to organizational law….

  6. But the other edge of the sword remains. The incomplete contracting literature reminds us that all contracts are incomplete….

  7. When gaps appear in the blockchain’s nexus of contracts, what will happen? The answer to that question turns … on the extent to which an entity is organized strictly on the blockchain. If the entity exists on the blockchain alone, then the law simply fails—it has no entry point into the code. But as long as identifiable individuals organize entities on the blockchain, a legal intervention point does exist—not in the blockchain itself, but rather in the intersection of the blockchain and the corporeal world.

Law and the Blockchain Notes and Questions
  1. Gap-Filling Mechanics. Rodrigues distinguishes contractual gaps (unaddressed contingencies) from legal intervention points (court entryways). Why is this dichotomy vital? Could coders design "intervention points" into smart contracts?

  1. Liability Paradox. ÐAOs meet partnership criteria yet avoid liability via pseudonymity. Should courts treat this as de facto limited liability? Does this undermine partnership law’s penalty-default function?

  2. Wrapper Tradeoffs. Legal wrappers supply personhood but reintroduce centralization (¶5). If Wyoming’s ÐAO statute mandates a "legal representative," does this resolve Rodrigues’ concerns or prove her point?

  3. Regulatory Triggers. Rodrigues claims law intervenes only where blockchain meets the "corporeal world" (¶5). Should regulators: Treat developers as de facto fiduciaries? Mandate intervention points in ÐAO code? Recognize pseudonymity as a regulatory gap?

  4. Doctrinal Obsolescence. Rodrigues warns default law "has no purchase" on pure-blockchain ÐAOs (¶3). Does this require new legal categories? Or can traditional doctrines adapt (e.g., treating code as a charter)?

Statutory Recognition of ÐAOs

As ÐAOs have gained prominence, some U.S. states have moved to provide legal recognition through statute. These laws create entity forms tailored to blockchain-native governance—often by adapting the limited liability company (LLC) framework to accommodate smart contract-based rulemaking and tokenholder governance. They attempt to offer ÐAOs the benefits of legal personhood and limited liability without requiring them to adopt centralized or off-chain management structures.

The resulting statutes vary in ambition and design. Wyoming was first, creating a ÐAO LLC form that allows members to substitute smart contract governance for traditional operating agreements. Utah followed with a more detailed approach, requiring certain transparency mechanisms and human legal representatives. Vermont adopted a blockchain-based LLC statute that permits use of smart contracts but does not create a ÐAO-specific entity form. Tennessee adopted a ÐAO LLC statute modeled largely on Wyoming’s.

These statutory approaches raise important questions for business organization law. How should default rules operate in blockchain-native firms? Should smart contracts displace fiduciary duties? Can law accommodate on-chain governance without undermining core principles of accountability?

The next sections present excerpts from the four leading ÐAO-related statutes and invite close reading and comparison of their structure, requirements, and assumptions.

Wyoming ÐAO Act

The following excerpt from Wyoming’s ÐAO Supplement to the Limited Liability Company Act illustrates the first statutory attempt in the United States to give legal personhood and limited liability to ÐAOs. It permits ÐAOs to register as LLCs and choose between “member-managed” and “algorithmically managed” structures. The statute also allows ÐAOs to waive fiduciary duties and requires disclosure of the smart contracts through which governance occurs.

Wyoming was the first state to enact a dedicated DAO statute, allowing a DAO to organize as a limited liability company and requiring its articles to include a publicly available identifier of any smart contract material to its operation. As you read the selected provisions, consider what legal problems the statute solves—and which ones it leaves open. The statute provides that member rights in a DAO LLC “may differ materially” from rights in an ordinary LLC: what default protections does a Wyoming DAO LLC member lose, and are token-holders likely to know that? And does requiring a public smart-contract identifier actually give non-technical members meaningful notice of the rules that govern them?

Wyo. Stat. §§ 17-31 (Wyoming Decentralized Autonomous Organization Supplement)

Wyo. Stat. § 17-31-102(a)(i) “Decentralized autonomous organization” means a limited liability company whose articles of organization contain a statement that the company is a decentralized autonomous organization as described in this chapter.

Wyo. Stat. § 17-31-104(a) A decentralized autonomous organization may be formed pursuant to this chapter. A decentralized autonomous organization formed pursuant to this chapter shall be a "decentralized autonomous organization limited liability company" or "DAO LLC". A DAO LLC shall be formed in accordance with the requirements of the Wyoming Limited Liability Company Act.

Wyo. Stat. § 17-31-104(b) The articles of organization of a DAO LLC shall include a publicly available identifier of any smart contract directly used to manage, facilitate or operate the DAO.

Wyo. Stat. § 17-31-104(c) The rights of members in a DAO LLC may differ materially from the rights of members in a limited liability company that is not a DAO LLC, including with respect to voting rights, transferability of interests and fiduciary duties.

Wyo. Stat. § 17-31-105(a) The articles of organization shall designate whether the DAO LLC is member managed or algorithmically managed.

Wyo. Stat. § 17-31-105(b) If the DAO LLC is member managed, the members shall manage the DAO LLC in accordance with the operating agreement or the smart contracts. If the DAO LLC is algorithmically managed, the smart contracts shall exclusively manage the DAO LLC and no member shall have fiduciary duties to the organization or to any member except as provided in the articles of organization or operating agreement.

Wyo. Stat. § 17-31-107 Notwithstanding any other provision of law, the articles of organization or operating agreement may eliminate any fiduciary duty of a member or manager except the implied contractual covenant of good faith and fair dealing.

Wyoming ÐAO Act Notes and Questions

  1. ÐAO LLC Definition and Formation. Wyoming’s statute defines a “ÐAO” as a limited liability company whose articles of organization explicitly state it is a ÐAO (§102(a)(i)). This mirrors how other special entity forms (like benefit corporations) require a public declaration to opt into a unique legal regime. Why does Wyoming require this explicit declaration? How does this approach balance innovation with regulatory clarity?

  2. Smart Contract Transparency. Under §104(b), the articles of organization for a ÐAO must include a publicly available identifier for any smart contract used to manage, facilitate, or operate the entity. In traditional LLCs, such operational mechanisms are not typically public or technologically specified. If a ÐAO fails to comply, it could lose statutory protections or face administrative consequences. What legal risks arise if a ÐAO fails to comply? How does this requirement affect third parties interacting with ÐAOs?

  3. Divergent Member Rights. §104(c) allows ÐAO LLCs to structure member rights—including voting, transferability, and fiduciary duties—very differently from traditional LLCs. In conventional LLCs, courts may scrutinize unusual provisions for fairness, especially if minority members are disadvantaged. Should courts scrutinize such deviations more strictly than in conventional LLCs? What safeguards exist for minority members?

  4. Algorithmic Management. §105(a)–(b) distinguishes between member-managed and algorithmically managed ÐAOs. In algorithmically managed ÐAOs, smart contracts exclusively govern the entity, and fiduciary duties can be eliminated unless otherwise provided. While code can automate decisions, it cannot exercise human judgment or adapt to unforeseen circumstances. Can code truly replace human fiduciary obligations? If an algorithmically managed ÐAO’s code exploits members, what remedies exist?

  5. Fiduciary Flexibility. §107 permits ÐAOs to eliminate most fiduciary duties for members or managers, but preserves the implied contractual covenant of good faith and fair dealing. Delaware LLC law similarly allows broad waiver of fiduciary duties, but always preserves this implied covenant as a backstop against bad-faith conduct. Why is this exception critical? Compare this to fiduciary duties in Delaware LLCs or partnerships.

  6. Legal Innovation vs. Stability.
    Wyoming’s ÐAO framework (§104–107) offers flexibility for innovators but reduces traditional legal safeguards for creditors and minority members. In conventional LLC law, certain protections are mandatory to prevent abuse. Does this model adequately protect creditors or minority members? Should other states adopt similar liability shields?

  7. Regulatory Leadership. Wyoming was the first state to enact a comprehensive ÐAO statute (§17-31). Tennessee’s statute emphasizes ÐAO taxation and registration, while Utah requires ÐAOs to appoint a human agent for legal compliance. These differences show a range of regulatory approaches. How does Wyoming’s approach compare to Tennessee’s or Utah’s? Should federal law preempt these state-level experiments?

Wyoming DUNA (Decentralized Unincorporated Nonprofit Association)

Wyoming enacted a second ÐAO-related statute in 2022: the Decentralized Unincorporated Nonprofit Association Act (DUNA). Unlike the ÐAO LLC form, which is tailored for for-profit governance, DUNA creates a nonprofit entity form intended for public goods ÐAOs, open-source communities, and other decentralized networks that do not distribute profits. The statute grants legal personhood to decentralized associations and allows them to hold property, enter contracts, and engage in litigation.

DUNA also recognizes that such organizations may lack centralized leadership. It allows management by code or distributed community processes, and it limits liability for members and developers acting in good faith.

Wyoming’s DUNA statute creates a non-profit legal entity that can be formed entirely through smart-contract deployment, without any human “organizer” filing paperwork with the state. As you read the provisions, consider why the legislature chose a nonprofit association structure rather than an LLC structure for this entity type. The DUNA may be governed by members, by software protocols, or by any combination: does delegating governance to software eliminate the accountability that legal personhood is supposed to provide? And if a DUNA has no members who voted to form it—because it was created by deploying code—who bears legal responsibility for its obligations?

Wyo. Stat. §§ 17-32-101 et seq. (Wyoming Decentralized Unincorporated Nonprofit Association Act or “DUNA”)

Wyo. Stat. § 17-32-102(a) A decentralized unincorporated nonprofit association is an unincorporated association consisting of three or more members joined by mutual consent for a common nonprofit purpose.

Wyo. Stat. § 17-32-102(b) A DUNA may be formed through the deployment of one or more smart contracts or similar technical artifacts publicly available on a blockchain or other distributed ledger technology.

Wyo. Stat. § 17-32-104 A DUNA is a legal entity separate from its members. It may sue and be sued, acquire and hold title to property, and enter into contracts in its own name.

Wyo. Stat. § 17-32-106(a) A DUNA may be governed by its members, by software protocols, or by any combination thereof.

Wyo. Stat. § 17-32-107 A member, developer, or participant in a DUNA shall not be liable for the debts, obligations, or liabilities of the association solely by reason of membership or participation, provided they act in good faith and do not exercise centralized control.

Wyoming DUNA Notes and Questions
  1. Nonprofit Purpose Requirement. DUNA requires a “common nonprofit purpose” (§17-32-102(a)), distinguishing it from the for-profit ÐAO LLC structure. This separate statute addresses the unique needs of public goods ÐAOs and open-source communities that prioritize collective benefit over profit distribution. Why might nonprofit ÐAOs require distinct legal treatment, and how does this prevent misuse of limited liability for commercial activities?

  1. Formation Through Smart Contracts. Formation occurs via "deployment of smart contracts" without traditional filings (§17-32-102(b)). This embraces technological autonomy but risks creating entities with unintelligible or buggy code. Should code deployment alone confer legal status? What safeguards could mitigate risks to third parties relying on these entities?

  2. Legal Personhood Without Centralization. DUNA grants legal personhood for property ownership and litigation (§17-32-104), crucial for decentralized nonprofits lacking human leadership. Why is entity status essential even for nonprofits? Could ambiguities in decentralized ownership complicate creditor claims or asset recovery?

  3. Software Protocol Governance. Governance may use “software protocols” exclusively (§17-32-106(a)), resembling algorithmic ÐAO LLCs but without fiduciary duties. How does this model handle conflicts when code executes unintended outcomes? Should liability increase if governance relies solely on immutable code?

  4. Liability Shield and Centralized Control. Participants avoid liability if acting in good faith without “centralized control” (§17-32-107). What actions—like unilateral code updates or treasury management—might constitute “centralized control?” How should courts evaluate developer influence in token-based governance systems?

Utah ÐAO (LLD) Act

Utah enacted its Limited Liability Decentralized Autonomous Organization Act (LLD Act) in 2023. The statute creates a ÐAO-specific legal entity that builds upon the LLC framework but adds novel features intended to preserve decentralization. It permits ÐAOs to be governed by smart contracts while still enjoying legal personhood and limited liability.

Key innovations of the Utah LLD Act include a requirement that ÐAOs publicly identify a “registered agent” or “legal representative” responsible for compliance, mandates for transparency of smart contract code, and a dispute resolution mechanism either embedded in the protocol or identified in filings. The statute distinguishes between “algorithmic” and “member-managed” ÐAOs and imposes minimum criteria to avoid pseudonymous abuse.

Utah’s Limited Liability Decentralized Autonomous Organization (LLD) statute requires the DAO to maintain a “publicly available and human-readable interface” explaining its governance and operations—a transparency requirement that goes beyond Wyoming’s approach. As you read the provisions, consider what “human-readable” actually requires and whether a legal standard can keep pace with technical complexity. The statute grants the DAO separate legal personhood: does that grant change the analysis in Sarcuni, where the court found personal liability in the absence of a legal wrapper? And does Utah’s transparency requirement adequately protect participants who joined the DAO before the interface was published?

Utah Code Ann. §§ 48-5-101 et seq. (Utah Decentralized Autonomous Organizations Act)

  1. § 48-5-104. A limited liability decentralized autonomous organization is a legal entity separate and distinct from its members. A limited liability decentralized autonomous organization: (a) has the capacity to sue and be sued in the decentralized autonomous organization's own name; (b) has the power to do all things necessary or convenient to carry on the decentralized autonomous organization's activities and affairs; (c) shall meet the decentralized autonomous organization's liabilities through the decentralized autonomous organization's assets; and (d) may have any lawful purpose.

  2. § 48-5-201(1). One or more persons may act as organizers to form a decentralized autonomous organization by delivering to the division for filing a certificate of organization. At least one of the organizers shall be an individual.

  3. § 48-5-201(3). As part of the certificate of organization, the organizers shall submit evidence that the organization: (a) is deployed on a permissionless blockchain and has a unique public address through which all transactions may be reviewed; (b) makes its software code publicly available; (c) has completed quality assurance of the software code; (d) maintains a graphical user interface accessible to the public that identifies key governance variables, allows transaction monitoring, identifies any redemption or transfer restrictions on tokens, provides the bylaws, and specifies an administrator contact mechanism; (e) has a decentralized governance system; (f) has at least one member; (g) has a publicly specified communication mechanism for contacting the registered agent; and (h) has a binding dispute resolution mechanism.

  4. § 48-5-202(1). A member of a decentralized autonomous organization: (a) may only be liable for the on-chain contributions that the member has committed to the decentralized autonomous organization; (b) may not be held personally liable for any excess liability after the decentralized autonomous organization's assets have been exhausted; (c) may not be held personally liable for obligations incurred by or on behalf of the decentralized autonomous organization; and (d) may not be held personally liable for the wrongful acts or omissions of any other member of the decentralized autonomous organization.

  5. § 48-5-202(2). A member who fails to comply with, or vote in favor of compliance with, an enforceable judgment or order against the decentralized autonomous organization is liable for any monetary payments required by the judgment or order in proportion to the member's share of governance rights at the time the judgment or order becomes enforceable against the decentralized autonomous organization.

  6. § 48-5-307. A developer, member, participant, or legal representative of a decentralized autonomous organization may not be imputed to have fiduciary duties towards each other or third parties solely on account of their role, unless the developer, member, participant, or legal representative: (a) explicitly holds themselves out as a fiduciary; or (b) stipulates to assume a fiduciary status as provided in the decentralized autonomous organization's by-laws.

Utah LLD Act Notes and Questions

  1. What distinguishes Utah’s approach? Utah adopts an LLC-based ÐAO statute but imposes novel legal personality (¶1), formation requirements (¶2–3). How do these features compare to Wyoming’s more minimal approach?

  2. Why require a legal representative? Utah mandates that ÐAOs identify a human or legal entity who can receive service of process (¶3). What problems does this solve? What risks might it create for the person or firm named?

  3. Governance disclosure and smart contract clarity. Utah requires a human-readable interface summarizing the ÐAO’s governance rules (¶3). Should ÐAOs be required to explain their protocols to regulators or users in plain language? Who should determine whether the summary is adequate?

  4. Dispute resolution requirements. ÐAOs must disclose a method for resolving internal or external disputes (¶3). Why might this matter for user protection or investor confidence? What are the strengths and limitations of enforcing these mechanisms?

  5. Legal identity through blockchain registration. Utah allows formation via a certificate identifying the ÐAO’s legal personality and formation (¶1–2). How does this form of registration compare to traditional LLC formation? Is blockchain-disclosed governance compatible with legal formalities?

Vermont Blockchain-Based LLC (BBLLC)

Before the rise of ÐAO-specific statutes, Vermont enacted the Blockchain-Based Limited Liability Company (BBLLC) Act in 2018. While the law does not use the term “ ÐAO,” it allows LLCs to opt into a governance framework that uses blockchain technology for decision-making, record-keeping, and member coordination. This statute effectively permits ÐAOs or ÐAO-like entities to function within a modified LLC structure—without abandoning conventional legal requirements like an operating agreement, managers, or fiduciary duties.

Unlike Wyoming and Utah, Vermont does not eliminate fiduciary duties, nor does it recognize “algorithmic management.” Instead, it permits smart contracts and blockchain infrastructure to supplement internal governance, provided that the company discloses how these mechanisms work. The law focuses on transparency: the BBLLC must include in its operating agreement a plain-language explanation of its purpose, governance mechanisms, consensus process, and responses to risks such as hacking or malfunction.

Vermont’s Blockchain-Based LLC statute allows an existing LLC to “elect” blockchain governance by amending its operating agreement—making blockchain governance optional rather than definitional, as in Wyoming. As you read the provisions, consider how the opt-in structure affects the legal status of participants: if a BBLLC’s smart contract produces an outcome the operating agreement did not anticipate, which document controls? The statute permits “algorithmic consensus mechanisms” for validating records: does algorithmic consensus satisfy the evidentiary requirements that Delaware and other states impose on corporate records? And does Vermont’s opt-in structure make blockchain governance more or less accessible to non-technical organizers than Wyoming’s standalone DAO LLC form?

Vt. Stat. Ann. tit. 11, ch 25 §§ 4001 et seq. (Vermont Limited Liability Company Act)
  1. § 4172. A limited liability company organized under this chapter may elect to be a blockchain-based limited liability company (BBLLC) by so specifying in its articles of organization and complying with §§ 4173 and 4174.

  1. § 4173(a)(1). A BBLLC may provide for its governance, in whole or in part, through blockchain technology.

  2. § 4173(a)(2). The operating agreement shall include: (A) a summary of the BBLLC’s purpose and governance structure; (B) whether the blockchain is public or private, and whether consensus is fully or partially decentralized; (C) voting procedures, which may include smart contracts; (D) protocols for responding to security breaches or unauthorized activity; (E) procedures for membership and ownership rights; (F) the rights and duties of participants, including managers and members.

  3. § 4175. A BBLLC may adopt algorithmic consensus mechanisms for validating records or conducting operations. These mechanisms may be modified or replaced in accordance with the BBLLC’s governance procedures.

  4. § 4176. Nothing in this subchapter exempts a BBLLC from other applicable state or federal law. Except where inconsistent, the Vermont LLC Act governs BBLLCs.

Vermont BBLLC Act Notes and Questions

  1. What kind of entity is a BBLLC? Vermont’s BBLLC statute allows blockchain-based governance but retains the underlying LLC structure and legal obligations (¶1, ¶5). How does this approach differ from Wyoming or Utah? Is a BBLLC just a regular LLC with some tech enhancements?

  2. Governance through blockchain. The BBLLC may be governed “in whole or in part” by smart contracts (¶2, ¶3(C)). What are the benefits and limits of integrating blockchain governance in this way? Does this go far enough to support a fully decentralized model?

  3. Transparency requirements. The operating agreement must include a plain-language summary of the blockchain’s architecture and governance protocols (¶3). Why might this help courts, regulators, or contracting parties? Who decides if the explanation is adequate?

  4. Fiduciary duties and participant rights. Vermont does not eliminate fiduciary duties or traditional member rights (¶3(F), ¶5). Should it? Does this promote accountability—or deter ÐAOs that want to avoid those obligations?

  5. Adaptability vs. recognition. Vermont offers a flexible model for blockchain experimentation but doesn’t create a ÐAO-specific form. Should it update the statute to reflect more recent ÐAO models? Or is this limited approach more stable for legal integration?

Tennessee ÐAO LLC

Tennessee followed Wyoming’s lead in 2022 with the enactment of its “Limited Liability Decentralized Organization” (LLDO) statute, codified as Tenn. Code Ann. §§ 48-250-101 to -115. The statute is modeled closely on Wyoming’s ÐAO LLC framework, offering ÐAOs legal personhood, limited liability, and flexible internal governance based on smart contracts. Tennessee requires ÐAO entities to include “ ÐAO” or “DO” in their legal name and permits elimination of fiduciary duties, subject to the implied covenant of good faith and fair dealing.

Like Wyoming, Tennessee’s law lets LLCs elect ÐAO status in their articles of organization. The default rules of the Tennessee LLC Act apply unless modified by the ÐAO-specific provisions. Tennessee ÐAOs cannot be formed by foreign entities; they must organize in Tennessee to take advantage of this structure. The legislative history suggests Tennessee aimed to become a blockchain-friendly jurisdiction for tech innovation.

Tennessee’s DAO statute is notable for its explicit waiver of default fiduciary duties: unless otherwise provided in the articles or operating agreement, members shall not owe fiduciary duties to the organization or to one another. As you read the provisions, consider what function fiduciary duties serve in an entity form where governance is distributed across thousands of anonymous token-holders. If a DAO member who holds a large block of governance tokens votes for a proposal that benefits themselves at other members’ expense, what legal theory provides a remedy after Tennessee’s waiver? And does the comparison across these five state statutes suggest that DAO law is converging on a common model, or that the states are running a competition to attract DAO registrations by progressively reducing legal obligations?

Tenn. Code Ann. §§ 48-249-101 et seq. (Tennessee Revised LLC Act) & §§ 48-250-101 et seq. (Tennessee Decentralized Organization Law)

  1. § 48-250-103(a). A decentralized organization is a limited liability company whose articles of organization contain a statement that the company is a decentralized organization as described in this chapter.

  2. § 48-250-104(d). The name of a decentralized organization shall include the words “ ÐAO,” “DO,” or other indicator of decentralized status, and comply with the name requirements of this title.

  3. § 48-250-106(a). A decentralized organization shall include in its articles a notice that members’ rights and duties may differ materially from those in a traditional LLC, and that fiduciary duties may be modified or eliminated.

  4. § 48-250-106(c). Except as otherwise provided in the articles or operating agreement, members shall not owe fiduciary duties to the organization or to each other, except for the implied contractual covenant of good faith and fair dealing.

  5. § 48-250-112. The Tennessee Revised LLC Act shall govern a decentralized organization, except to the extent that provisions in this chapter modify or supersede those rules.

Tennessee ÐAO Act Notes and Questions
  1. How does Tennessee define a ÐAO? Tennessee’s statute defines a decentralized organization as a special type of LLC formed by a specific election in its articles (¶1). Does this approach offer flexibility while maintaining legal clarity? Why might a ÐAO choose this structure over forming in Wyoming or Utah?

  1. ** ÐAO naming conventions.** The statute requires that the entity’s name indicate its decentralized nature (¶2). What function does this naming requirement serve? How does it relate to notice and third-party expectations?

  2. Notice of altered rights and duties. Tennessee mandates that the ÐAO’s articles include a warning that member rights and fiduciary duties may differ from traditional LLCs (¶3). Why is this notice important? Should the law do more to protect unsuspecting members or participants?

  3. Fiduciary duty modification. Like Wyoming and Utah, Tennessee allows ÐAOs to eliminate most fiduciary duties by contract, preserving only the covenant of good faith and fair dealing (¶4). Should this freedom be encouraged? Or does it leave too much room for abuse?

  4. Continuity with general LLC law. Tennessee applies its standard LLC Act by default, except where explicitly displaced (¶5). Does this help integrate ÐAO law into the broader entity framework? Are there risks in importing doctrines built for centralized entities?

Comparing ÐAO Statutes Across Jurisdictions

The four ÐAO-related statutes presented above reflect divergent regulatory philosophies. Wyoming and Tennessee adopt a permissive approach: they allow ÐAOs to waive fiduciary duties, operate without centralized managers, and be governed entirely by smart contracts. These statutes provide minimal oversight and impose few requirements beyond basic disclosures in the articles of organization.

Utah takes a more structured path. It retains the LLC framework but mandates transparency, dispute resolution mechanisms, and a designated legal representative. The Utah statute appears designed to reassure courts, regulators, and users that ÐAOs remain legible and reachable despite decentralization.

Vermont offers the most conservative model. It permits blockchain governance within a standard LLC, but does not recognize ÐAOs as a distinct form. Fiduciary duties remain intact, and smart contracts serve as supplements—not substitutes—for traditional governance mechanisms.

All four statutes preserve limited liability for participants and legal personhood for the entity. But they diverge sharply on matters of internal structure, member protection, and regulatory orientation. These differences present students with a natural opportunity to analyze how law should respond to blockchain-native forms of business organization.

ÐAO Statute Comparison Notes and Questions
  1. What problem are these statutes trying to solve? Each ÐAO statute addresses the legal uncertainty facing unregistered ÐAOs, especially the risk of default classification as a general partnership. Which statute does the best job of offering a clear, usable legal form for decentralized governance?

  1. How much should the law defer to code? Wyoming and Tennessee permit “algorithmic management,” allowing smart contracts to substitute for human decision-making. Should the law recognize this as a legitimate form of governance? What happens when the code fails?

  2. Should fiduciary duties be optional? Wyoming, Utah, and Tennessee allow fiduciary duties to be waived, while Vermont retains them. What risks arise when loyalty and care can be contractually eliminated? Is the covenant of good faith and fair dealing sufficient to protect participants?

  3. Public transparency and user protection. Utah and Vermont require human-readable explanations of ÐAO governance. Wyoming and Tennessee do not. Should every ÐAO be required to publish plain-language disclosures of its operations? Why or why not?

  4. Choosing a jurisdiction. Imagine you are forming a ÐAO with token-based governance and global participation. Where would you form it, and why? Which statute offers the best balance of legal certainty, decentralization, and accountability?

Smart Contracts as Governance Charters

ÐAOs rely on smart contracts not only for executing financial transactions, but for organizing internal governance. In many ÐAOs, smart contracts perform the role of a charter, operating agreement, or board resolution: they define quorum, authorize spending, and enforce the outcome of votes. These contracts execute automatically, without human discretion.

Smart contracts are often praised for eliminating the need for trust—but this automation comes at a cost. Unlike traditional contracts, they do not require enforcement through courts. They are written in code, executed by blockchain protocols, and enforce performance by making breach technologically impossible. If the code is flawed or ambiguous, it may nonetheless execute as written.

The excerpt below from Max Raskin introduces smart contracts as a form of legal “self-help.” He compares them to vending machines—contracts that are performed mechanically once preconditions are met. The comparison illuminates both the power and limitations of automated enforcement in ÐAO governance.

Raskin uses the vending machine as the paradigm case of a self-executing contract: deposit a coin, receive a product, no court required. As you read the excerpt, ask whether the vending machine analogy holds for complex financial agreements—what features of ordinary contracts cannot be reduced to if-then logic? Smart contracts are said to be “immutable” once deployed; consider whether immutability is a feature or a defect when circumstances change after execution. And if a smart contract performs exactly as coded but produces an outcome neither party intended or foresaw, which legal theory—if any—gives the aggrieved party a remedy?

Max Raskin, The Law and Legality of Smart Contracts, 1 Geo. L. Tech. Rev. 305, 306–10 (2017)
  1. Self-help is nothing new. Whether building walls to stymie trespassers or changing locks to evict squatters, individuals regularly act on their own before invoking the formal legal system. Over the past few years, a group of innovators have begun designing computer technologies that bring self-help to the realm of contracts. They call these new contracts “smart contracts.” Their aim is to allow contracting parties to ensure their agreement is enforced by raising the costs of any breach by a prohibitive amount….

  1. Smart contracts are defined as agreements wherein execution is automated, usually by computers. Such contracts are designed to ensure performance without recourse to the courts. Automation ensures performance, for better or worse, by excising human discretion from contract execution.

  2. One example of a smart contract is the humble vending machine. If the machine is operating properly and money is inserted into the machine, then a contract for sale will be executed automatically. This is a smart contract….

  3. The vending machine example demonstrates that contracts can be enforced mechanically. But when the transaction involves something more complex than soda, legal questions arise. Who is liable if the machine misfires? What if the goods are illegal? Should courts regulate the machine, or its operator?

  4. Smart contracts—like vending machines—replace judicial enforcement with automatic execution. But the cost of certainty is rigidity: a machine cannot reconsider or contextualize. It performs, regardless of fairness or error.

Raskin Notes and Questions

  1. What does it mean to call smart contracts “self-help”? Raskin describes smart contracts as a form of automated enforcement that eliminates the need for courts (¶1–2). In what sense is this “self-help”? How does this compare to traditional legal remedies?

  2. What makes the vending machine a useful analogy? The vending machine executes a sale based on pre-programmed conditions (¶3). How is this similar to governance functions in ÐAOs? In what ways might the analogy break down?

  3. Automation versus discretion. Smart contracts, like vending machines, cannot adjust to unexpected events (¶5). What happens when the contract contains an error or unforeseen condition? Should the law treat code-based contracts more or less leniently than human-executed ones?

  4. Legal recognition and responsibility. In ¶4, Raskin asks who is responsible when a vending machine goes wrong. How might this question apply to ÐAOs that rely entirely on smart contracts for treasury management, voting, or upgrades?

  5. Should smart contracts be treated like legal contracts? Raskin argues that traditional legal analysis can still apply to smart contracts. Do you agree? Should courts defer to the code, or interpret the intent behind it?

Voting Mechanisms and Governance Challenges

Most ÐAOs use token-based voting to make internal decisions. Typically, a tokenholder can propose changes—such as protocol upgrades or treasury allocations—and vote in proportion to the number of tokens they hold. Governance contracts tally the results and automatically execute approved decisions.

This model, often called “one token, one vote,” mirrors corporate control structures, but with important differences. Tokens may be acquired on open markets, distributed via airdrops, or earned through protocol participation. Tokenholders are often pseudonymous and geographically dispersed. Unlike shareholders, they rarely have fiduciary obligations, and they may vote strictly in their own interest.

Alternative models of ÐAO governance have emerged to address the perceived flaws of plutocratic token voting. These include conviction voting (which weights long-term commitment), quadratic voting (which penalizes dominance by large holders), and prediction markets or “holographic consensus.” Each mechanism attempts to refine how preferences are aggregated, and each brings its own risks.

The excerpt below surveys ÐAO governance structures and considers the challenges and possibilities of designing fair, functional, and decentralized voting systems.

Sims documents that DAO voter participation can fall below three percent of eligible token-holders. As you read the excerpt, consider whether a governance decision adopted by a small fraction of token-holders carries the legitimacy we normally associate with majority-rule governance. The excerpt describes “conviction voting,” in which preferences accumulate weight over time: does that mechanism solve the participation problem, or does it advantage holders who never need to sell? And if low participation is chronic, what does that suggest about the practical difference between a “decentralized” DAO and a centralized entity controlled by its most committed insiders?

Alexandra Sims, Decentralised Autonomous Organisations: Governance, Dispute Resolution and Regulation (Ph.D. thesis, University of Auckland, 2021)
  1. Voting on proposals also varies amongst DAOs. While some DAOs use a traditional one token–one vote voting scheme, others wary of concentrating power use a range of novel schemes, including reputation-based systems and conviction voting….

  1. The next section analyses the steps taken to encourage voting, because whether votes are cast is also important; all of a DAO’s token holders are permitted to vote, but few may.

  2. For decisions to be considered legitimate a large voter turnout is necessary. Some DAOs have recorded votes as low as 3 percent and even lower. Thus encouragement of voting is required. Voter apathy combined with the need to vote on a significant number of proposals may explain such….

  3. Conviction voting was created specifically for the governance of DAOs. Conviction voting enables preferences to be expressed and is designed to address many of the problems inherent in decision-making, particularly when attempting to manage shared resources.

  4. Conviction voting is designed so small token holders are not outweighed by those with larger holdings who decide to vote at the last moment. However, if large token holders vote at or near the beginning of the voting period their views will still triumph.

  5. Quadratic voting—first proposed in 2012 and later expanded in Radical Markets—was designed to overcome the effect of one person–one vote on minorities in political democracies.

  6. The preceding sections have demonstrated a wide variety of voting schemes. Those voting schemes, however, are limited as a person can vote only ‘yes’ or ‘no’, and depending on the voting scheme, ‘abstain’. The strong and weak preferences of the voter are not taken into account.

  7. DAOs have the potential to enable decentralised organisations that do not succumb to the tyranny of structurelessness, as their rules are laid out clearly and their rules cannot be broken. Yet, at first glance, DAOs may not have been successful in removing another aspect of the tyranny of structurelessness – the power of elites – whether hidden or flaunted.

Sims Notes and Questions
  1. How democratic is “one token, one vote”? Sims observes that DAOs often adopt token-weighted voting schemes, but warns that such models can concentrate power in the hands of large tokenholders (¶1). Does this approach more closely resemble corporate governance or democratic politics? What are the consequences for fairness and legitimacy in decentralized systems?

  1. Participation problems in DAO governance. Despite nominally open governance, many DAOs struggle with low turnout, disengaged participants, and governance fatigue (¶2–3). Why might these participation issues be more acute in decentralized ecosystems than in traditional firms? How do they affect the legitimacy and sustainability of DAO decisions?

  2. What is conviction voting? Conviction voting rewards users who express consistent preferences over time, increasing their voting influence the longer their support is maintained (¶4–6). How might this mechanism mitigate short-term manipulation or apathy? What assumptions does it make about voter incentives and behavior?

  3. Quadratic voting and preference intensity. Quadratic voting allows users to signal not just what they prefer but how strongly they feel about it, at escalating cost (¶7). How does this method seek to balance majority rule with minority intensity? What are the risks if identity or token balances can be gamed?

  4. Should DAOs adopt alternative voting models? Sims describes several innovative voting mechanisms but notes that few DAOs use them in practice (¶8). Should the law require or encourage experimentation with more nuanced forms of governance? Or should DAO members retain the freedom to self-organize—even if that means replicating plutocratic structures?

  5. Can DAOs escape the “tyranny of structurelessness”? Sims concludes with a reflection on whether DAOs truly achieve decentralization—or merely encode new forms of elite control (¶9). Are transparent protocols and immutability enough to replace hierarchical governance? Or does power inevitably concentrate, even in code?

Centralized Control and Code Authority

ÐAOs are often described as “decentralized,” but in practice, many retain elements of traditional hierarchy. Developer teams typically deploy and maintain the smart contracts. Founders may control upgrade keys or treasury wallets. Multisignature committees often manage proposals or emergencies. These forms of off-chain or off-protocol influence resemble boards of directors or executive committees in traditional organizations.

The excerpt below, drawn from an empirical study of token governance by Cohney, Hoffman, Sklaroff, and Wishnick, reveals that even well-known ÐAOs frequently rely on centralized, opaque governance processes. Many of the smart contracts that purported to enforce community decisions could be overridden—or had no enforcement mechanism at all.

Cohney and his co-authors examined the fifty largest ICO smart contracts and compared their on-chain code to the promises made in the accompanying whitepapers. As you read the excerpt, consider what it means for investor protection when the code that actually governs the investment diverges from the document investors were shown. The article focuses on two canonical investor protections—supply caps and lock-up periods—that were promised in whitepapers but not always enforced in code: if these gaps were disclosed, does disclosure cure the problem? And does the article suggest that the problem is one of fraud, inadequate disclosure, or a structural failure of the “code is law” premise itself?

Cohney et al., Coin-Operated Capitalism, 119 Colum. L. Rev. 591 (2019)
  1. This Article presents the legal literature’s first detailed analysis of the inner workings of Initial Coin Offerings (ICOs). We characterize the ICO as an example of financial innovation, placing it in kinship with venture capital contracting, asset securitization, and (obviously) the IPO. We also take the form seriously as an example of technological innovation, in which promoters are beginning to effectuate their promises to investors through computer code, rather than traditional contract.

  1. To understand the dynamics of this shift, we first collect contracts, “whitepapers,” and other disclosures for the fifty top-grossing ICOs of 2017. We then analyze how the software code controlling the projects’ ICOs reflected (or failed to reflect) their disclosures. Our inquiry reveals that many ICOs failed even to promise that they would protect investors against insider self-dealing. Fewer still manifested such promises in code. Surprisingly, in a community known for espousing a technolibertarian belief in the power of “trustless trust” built with carefully designed code, a significant fraction of issuers retained centralized control through previously undisclosed code permitting modification of the entities’ governing structures….

  2. One type of bargained-for protection is a constraint on the supply of the investment asset for sale. In the traditional corporate context, each share sold to investors provides a legal right to a piece of an enterprise’s residual assets. In an efficient market, changes to the number of outstanding shares would affect share price but not firm value. Put another way, the enterprise’s assets are like a pie, and every newly issued share makes each slice smaller. Because they want big pieces, early shareholders seek protection against late-breaking stock issuance. Traditional corporations act through human agents; those humans are only able to issue as many shares as the corporation’s (amendable) Articles of Incorporation allow. Exploitative issuances are deterred by the common law of fiduciary duty….

  3. A second bargained-for protection has to do with the threat that key members of the entrepreneurial team will walk away from the project. Investors generally protect against desertion (and motivate exertion) through a set of carrots and sticks offered to managers. They incentivize them with equity options—rights that enable managers to share in the firms’ future profits—but condition those options’ exercise on contractual conditions, in other words, vesting. Option, lock-up, and vesting rules attempt to align managers’ incentives with those of the firm and are endemic in the early-stage VC financing world.

  4. In ICOs, classic options are quite rare, but token-vesting promises are common. As one project (marketing its vesting promises) wrote, it “is a governance practice designed to ensure long-term alignment of interests and is standard for any serious project.” Another wrote that “[v]esting is a must. There are no excuses not to do it. It aligns everyone’s incentives and ensures that no founder dumps happen.” As with promises regarding supply, vesting promises that are coded are enforced automatically. Those merely present in marketing materials or paper contracts are less likely to be enforceable….

  5. Beyond the specific protections against inflation of supply and desertion by key people, the promise of cryptoassets has also rested on the idea that investors are protected by the immutability of blockchain code. As we noted above, lawyers might well think of this as a wacky idea. And sure enough, immutability has indeed gone by the wayside for a number of ICO projects. Disclosure of what we refer to as “modifiability” is another matter….

  6. In the simplest setting, a developer can simply copy the contents of the data stored in a smart contract, and create a new smart contract, prepopulated with the data from the former. While those who owned tokens in the context of the original contract also own tokens in the new smart contract, the developer is free to create new code controlling the behavior of the latter. More concretely, an issuer may refuse to honor the original token when they finally complete development of the product the ICO was designed to fund.

  7. This can be accomplished using two sets of rules: a primary smart contract with which users interact and a series of secondary smart contracts whose code is incorporated by reference. Our lawyerly audience can think of the typical relationship between a website’s Terms of Service and its Privacy Policy: The former usually contains a link to the latter, and purports to bind visitors to both. Or, think of a public law that points to a private standard, like a city code that adopts LEED green-building standards. The standard can be updated privately, thereby modifying the effect of public law.

  8. A similar “pointing” mechanism enables the modification of cryptoasset smart contracts. All tokens using this method share identical code. The primary smart contract stores for each user the address of a secondary smart contract, containing the most recent set of accepted modifications. The owner of the primary smart contract can modify the code by proposing a new secondary address, defining the smart contract whose terms will be incorporated. In one example we found (Monaco), the code gave users three days to opt in or out before the modification spread….

  9. The computer code at the heart of ICOs enables a new way of founding and governing enterprises. It allows entrepreneurs to adopt the ICO method, whether for good or ill. But while smart contract technology may be a driver—indeed, a definitional component—of the ICO phenomenon, we believe our study demonstrates in detail that smart contracts are also embedded in the social world. Just like Coca- Cola’s vending machines, ICOs are products of their time and place. They are built atop innovative “technical systems” that only recently came into being, and they are conducted within particular “communities of discourse” that happen to exist here and now. To make sense of the technology’s role, scholars and regulators alike should study the unique forms that this embeddedness takes.

Coin-Operated Capitalism Notes and Questions
  1. Financial and Technological Innovation. Cohney et al. compare ICOs to venture capital, securitization, and IPOs, but emphasize that key promises are now effectuated via code rather than traditional contract (¶ 1). How does this shift from paper to code change our understanding of what a DAO “is” as an organization? What new forms of organizational trust or risk does this create?

  1. Code Versus Disclosure. By analyzing the 50 top-grossing ICOs, the authors reveal that disclosures and whitepapers often diverge from the actual, deployed smart-contract code (¶ 2). What does this gap between public statements and technical reality suggest about transparency and accountability in DAO governance? How might traditional organizational law handle such divergence?

  2. Supply Constraints and Organizational Discipline. Traditional corporate law enforces share-issuance limits through charters and fiduciary duty; DAOs must rely on supply caps coded into smart contracts to have effect (¶ 3). What organizational or governance risks arise if token supply constraints exist only in whitepapers and not in code? How might this affect member trust or participation?

  3. 4. Vesting and Team Incentives. In traditional organizations, vesting is often enforced through legal contracts and fiduciary duties. In ICO-based organizations, vesting that is coded is enforced automatically, but vesting that is only promised in marketing materials is unenforceable by code (¶¶ 4–5). What are the practical implications of using “coded” versus “paper” vesting for founder or developer incentives in DAOs? Which approach better aligns organizational interests?

  4. Modifiability and Centralized Control. Cohney et al. describe the “pointer upgrade” pattern, where a primary contract delegates authority to a secondary, upgradable contract—sometimes without adequate disclosure (¶¶ 6–9). How can this mechanism both enhance flexibility and create opportunities for hidden centralized control? What governance structures could DAOs adopt to ensure that upgrades are legitimate and not covertly controlled by insiders?

  5. Organizational Embeddedness. ICOs and DAOs do not exist in a vacuum; they are products of their technical systems and community norms (¶ 10). How should this “embeddedness” influence our evaluation of DAOs as organizational actors? Does it challenge the idea that DAOs are purely “decentralized” organizations?

Fiduciary Duties: Waived, Rewritten, or Implied?

Fiduciary duties are central to the internal governance of traditional business entities. Corporate directors and officers, as well as managers and members of LLCs and partnerships, typically owe duties of care and loyalty to the entity and its stakeholders—though many of these duties may be modified or even eliminated by private agreement.

ÐAO-specific statutes mark a dramatic departure from these traditional defaults. Jurisdictions such as Wyoming, Tennessee, and Utah authorize ÐAOs to eliminate fiduciary duties altogether, retaining only the implied contractual covenant of good faith and fair dealing. Disclosure is required in the articles of organization, signaling that fiduciary obligations may diverge sharply from those in conventional LLCs. Vermont, by contrast, applies its standard LLC fiduciary framework to ÐAOs formed under its statute.

This shift raises a functional and conceptual puzzle for organizational law. In theory, decentralized governance via open-source code and on-chain voting disperses authority so that no single actor holds power or control. If tokenholders, developers, and founders all disclaim centralized responsibility, can anyone be charged with fiduciary duties? Or, as some statutes suggest, are these duties obsolete in a context where there is “no one in charge”?

Yet in practice, many ÐAOs are governed by small teams of founders, developers, or insiders who retain control through upgrade keys, multisig wallets, or significant governance influence. The legal fiction of decentralization may mask ongoing de facto authority, raising the question whether law should recognize fiduciary duties for those who wield real control—even if informally or behind the scenes.

The following readings probe this paradox. Yeung examines how legal systems traditionally attribute responsibility to corporate insiders and asks whether analogous attribution is possible in blockchain-based organizations. De Filippi and Wright, meanwhile, explore how code-based governance can entrench new forms of hierarchy or power, sometimes outside the reach of legal remedy.

Yeung observes that public blockchain networks share structural features with corporate entities—multiple actors with divergent interests governed by rules they did not individually negotiate—yet they operate almost entirely outside regulatory frameworks designed for corporations. As you read the excerpt, consider what regulatory function corporate law performs that blockchain governance protocols currently do not. Yeung frames the relationship between “code of law” and “law of code” as a contest for supremacy: is that framing accurate, or are these two systems more complementary than competitive? And if a blockchain network were regulated as a corporation, who would be the “directors” with fiduciary obligations?

Karen Yeung, Regulation by Blockchain: the Emerging Battle for Supremacy between the Code of Law and Code as Law, [82 Mod. L. Rev. 207]{.smallcaps} (2019)

  1. Although the activities of corporate entities implicate many stakeholders, with many varied interests, purposes and intentions, a corporate entity has long been recognised as a single legal entity with juristic personality. Because corporate entities are ‘artificial’ persons, their governance structure is mandated by law, requiring both an underlying constitutional framework (known as a company’s Memorandum and Articles of Association) which specifies how the company can act: typically through its directors acting in accordance with a specified procedure. Moreover, conventional legal systems have, over time, developed settled principles and doctrines through which the intention and motives of particular individuals within the corporate entity might be legally attributed to it for particular legal purposes (including the application of criminal punishment, which typically requires proof of criminal intent).

  2. Public blockchain networks may be analogous to corporate entities in that a variety of actors are directly involved in their operation, who are widely dispersed in space and time, with very distinct interests, opportunities, forms of participation and motives for their involvement. These include the individual entrepreneurs who initiate and develop ideas for new blockchain applications; the software developers who devise, implement and contribute to the open source software code and cryptographic protocols upon which public blockchains generally operate (including the ‘core developers’ who occupy informal leadership roles based on their reputation and performance within the open source software developer community); the operators of nodes (i.e. those providing the computing power, performing the cryptographic proofs and storing a copy of the ledger); the holders of private keys (i.e. those who transact upon the network by, for example, trading in cryptocurrency) and commercial providers of ‘wallet’ services that provide a user-friendly interface for those wishing to transact on the blockchain network but lack the technical sophistication, capacity or confidence to do so directly. Yet, unlike corporate stakeholders, participants in blockchain networks are not recognised by law as bound together in a single, centralised organisational form.

Regulation by Blockchain Notes and Questions
  1. Comparative Governance. Contrast the statutory governance framework required for corporations (¶1) with the software-based governance described in ¶2. What challenges arise when courts attempt to interpret or enforce rules embedded in code rather than in a charter or articles of association?

  1. Identifying Fiduciaries. Yeung lists several classes of actors in blockchain networks (¶2). Which of these—from entrepreneurs to core developers to node operators—most closely resemble traditional officers or directors? For each, discuss whether existing fiduciary doctrines could apply to their conduct.

  2. Attribution of Intent. Under corporate law, the motives of directors can be attributed to the corporation (¶1). In a ÐAO, should the “intent” of a developer or founder be attributed to the DAO? If so, under what legal theories and with what limit on formal roles?

  3. Software as Charter. If blockchain governance is “encoded in software architecture” (¶2), can code serve as the functional equivalent of a corporate charter or by-laws? How might a court reconcile ambiguities in code with legal standards for good faith and fair dealing?

  4. State Interests and Enforcement. Yeung suggests that legal responses will turn on whether blockchain activities “threaten legitimate state interests” (¶2). What public policy objectives—such as investor protection or systemic stability—might justify imposing fiduciary-style duties on developers or founders? How should lawmakers calibrate those duties?

De Filippi and Wright argue that lex cryptographica—governance by self-executing code—could bring efficiency gains and legal certainty by reducing the need for human intermediaries to interpret and enforce rules. As you read the excerpt, identify the conditions under which those benefits materialize and the conditions under which they do not. The authors acknowledge that the characteristics of lex cryptographica may also produce rigidity and unintended consequences: can a system that eliminates discretion also eliminate injustice? And if blockchain-based rules can be drafted and deployed by private parties without legislative authorization, what theory of legitimacy justifies their binding effect on participants?

Primavera De Filippi & Aaron Wright, Code as Law, [Blockchain and the Law]{.smallcaps} (Harvard University Press 2018)
  1. When viewed as a whole, the use of blockchain technology as a regulatory technology could provide a series of benefits to regulators and possibly also to society at large. By relying on blockchain technology, governments could regulate society more efficiently by reducing the costs of regulatory compliance and law enforcement, automating laws, while simultaneously reducing the degree of uncertainty that is inherent in the legal prose. If these systems were to gain mainstream adoption and governmental support, they could progressively contribute to the establishment of a new regulatory framework—one that increasingly relies on lex cryptographica and that consequently enjoys the same properties as most of the code-based systems described previously, including resiliency, tamper resistance, and autonomy.

  1. With a blockchain, some laws and regulations can be translated, in whole or in part, into a set of autonomous code-based rules. Because rules translated in such a manner are executed automatically by the underlying blockchain-based network, people will have less of a need to rely on a judge to determine whether—and how—a particular rule memorialized as a smart contract should apply to any given situation. Given that the execution of blockchain-based rules does not require the intervention of any governmental authority, the impact of these rules can only be reviewed, after the fact, by a court or other judicial authority.

  2. While this could bring important benefits in terms of efficiency and legal certainty, the characteristics of lex cryptographica also create risk for individual autonomy and society as a whole. When controlled by a centralized and authoritative government, the distinctive characteristics of a blockchain—in terms of resilience, tamper resistance, and automatic execution—could lead to situations where powerful actors decide to incorporate their own set of rules into a blockchain-based system, so that anyone wishing to interact with that system will have no other choice but to abide by these rules. This could ultimately help expand the power of rigid and authoritarian regimes, which would gain a greater ability to control their citizens through a series of self-executing code-based rules.

Code as Law Notes and Questions
  1. Lex Cryptographica Defined. De Filippi & Wright describe a shift from paper-law to “rules … implemented using self-executing, code-based systems. What normative trade-offs emerge when code itself becomes the primary regulator? How does “lex cryptographica” differ from conventional statutory law in terms of transparency, flexibility, and accountability?

  1. Automated Enforcement. The authors note that code “automatically execute[s]” regulatory rules, leaving judicial review only “after the fact.” How does this ex-post-only review model compare to traditional administrative or criminal enforcement mechanisms? What due-process concerns arise when no ex-ante human discretion exists?

  2. Concentration of Power. Even “algorithmic governance” can be captured when powerful actors embed rules in code. In what ways do on-chain architectures replicate or worsen the off-chain centralization risks identified in Subpart B? Should fiduciary duties attach to those who control “code-only” rule-sets, and if so, on what theory?

Governance and Internal Decisionmaking

Every institution must solve the problem of governance: who decides, how, and on what terms. For centuries, business law has offered familiar answers—boards, partners, officers, members—each defined by legal form, constrained by fiduciary duty, and embedded in a web of statutes and defaults. Governance, in this tradition, is a legal structure as much as a process of decisionmaking.

ÐAOs face the same old problem, but offer a new answer: code. They attempt to govern themselves not through charters or bylaws, but through tokens, smart contracts, and cryptographic voting systems. This “rule of code” promises transparency, decentralization, and procedural certainty. Yet it may also obscure power, conceal delegation, and sometimes collapse into irrelevance. Even in a ÐAO, someone writes the code. Someone signs the multisig. Someone proposes, vetoes, upgrades, or exits.

And the rule of code does not displace the rule of law. Legal doctrines continue to shape the consequences of internal control: who may bind the entity, who owes duties to others, and how governance failures might be remedied. These questions do not vanish just because decisions are executed automatically. They take new forms.

This part explores ÐAO governance not as a novelty, but as the latest chapter in the long history of institutional control. It asks how ÐAOs structure decisionmaking, how they allocate authority, and whether they can offer a form of internal governance that is both legible to the law and legitimate to their members.

Token-Based Voting and Delegated Governance

ÐAOs commonly use token-based voting to make collective decisions. Each governance token typically carries one vote, and control is exercised by submitting proposals, casting votes, and executing outcomes through smart contracts. The entire process—from proposal submission to vote tally to implementation—can be governed by code. Unlike traditional business entities, where voting power is mediated through legal roles such as directors or general partners, ÐAO governance is often direct, permissionless, and continuous.

But this surface-level proceduralism conceals deep complexity. Participation tends to be sparse. Voting power is frequently concentrated among a handful of whales, insiders, or venture backers. Proposals may be difficult to draft, or they may pass without meaningful deliberation. Voting rights can be delegated, but mechanisms for transparency and accountability are limited. There is no doctrine of shareholder oppression, no fiduciary duty of loyalty, and no statutory floor for procedural fairness.

Despite these differences, token-based governance does not emerge from nowhere. It draws heavily—if implicitly—from the architecture of corporate voting: a system in which economic stake justifies political power, and procedural regularity substitutes for substantive consensus. ÐAOs reimplement this logic in code, but the design choices remain familiar: who can vote, how proposals are introduced, whether power can be delegated, and how majorities are determined. The examples that follow show how ÐAOs have tried to instantiate these mechanisms—and how their design reflects both technological possibilities and institutional risks.

Compound’s governance protocol delegates authority over a multi-hundred-million-dollar lending protocol to holders of a single ERC-20 token (COMP), using a system of delegation, time-locked voting, and a two-day review period. As you read the protocol description, consider how the governance structure compares to the shareholder-meeting model under Delaware corporate law: what protections does the Delaware model provide that the Compound protocol lacks? The protocol allows token-holders to delegate their voting rights to a third party: does that delegation mechanism create any fiduciary relationship between the delegate and the delegating token-holder? And if a COMP token-holder passes a proposal that modifies the protocol in a way that harms liquidity providers, what remedies, if any, does existing law provide?

Compound Governance Protocol

¶1 The Compound protocol is governed and upgraded by COMP token-holders, using three distinct components: the COMP token, governance module (Governor Bravo), and Timelock. Together, these contracts allow the community to propose, vote, and implement changes through the administrative functions of a cToken or the Comptroller. Proposals can modify system parameters, support new markets, or add entirely new functionality to the protocol.

¶2 COMP token-holders can delegate their voting rights to themselves, or an address of their choice. Addresses delegated at least 25,000 COMP can create governance proposals; any address can lock 100 COMP to create an Autonomous Proposal, which becomes a governance proposal after being delegated 25,000 COMP.

¶3 When a governance proposal is created, it enters a 2-day review period, after which voting weights are recorded and voting begins. Voting lasts for 3 days; if a majority, and at least 400,000 votes are cast for the proposal, it is queued in the Timelock, and can be implemented 2 days later. In total, any change to the protocol takes at least one week.

¶4 The governance process includes the following steps:

¶5 The governance module, Governor Bravo, manages the proposal lifecycle, including proposal submission, voting, and execution. The Timelock contract ensures a delay between proposal approval and execution, providing a safeguard against malicious proposals.

¶6 The governance system is designed to be transparent and decentralized, allowing COMP token-holders to have a direct say in the evolution of the Compound protocol.

Compound Governance Notes and Questions

  1. Procedural Design and Institutional Intent. Compound’s governance system specifies formal steps—propose, vote, queue, execute—alongside time delays and quorum thresholds (¶3–¶5). What kind of institutional values are embedded in this structure? Does the Timelock function like a deliberative buffer or more like a regulatory compliance period? What traditions of procedural governance does this resemble?

  2. Delegation and Political Power. Any COMP holder can delegate votes (¶2), but only addresses with 25,000 delegated COMP can create proposals. Is this more like a shareholder voting regime or a representative democracy? Who is empowered, and who is excluded? How might this affect participation and accountability?

  3. Token Governance and Insider Control. In practice, most proposals come from a handful of known participants with substantial holdings or reputational standing. What legal or institutional analogies can we use to think about this concentration of influence? Are these actors more like directors, lead plaintiffs, or insiders? Do they owe anyone fiduciary duties?

  4. Legal Status of Governance Actions. Compound proposals can add new markets, change protocol parameters, or upgrade smart contracts (¶1). If governance actions are executed entirely on-chain, do they bind any legal entity? Who bears responsibility if a governance-approved change causes harm?

  5. Enforceability and Contestation. In a corporate setting, shareholders may challenge votes or sue for breach of duty. What mechanisms, if any, exist for challenging governance outcomes in Compound? Should there be legal remedies for bad faith proposals or governance capture—or is that inconsistent with the ethos of protocol autonomy?

  6. Structure vs. Substance. Compound governance formalizes voting procedure but does not guarantee deliberation, disclosure, or discussion. What kinds of substance does this structure assume or overlook? If law values not just process but fairness, are there ways to evaluate DAO governance beyond its technical compliance with procedural rules?

  7. Comparative Institutional Reflection. Compound’s system may appear transparent and automated, but is it more democratic than a corporate board? More stable? More fair? What deeper institutional logics does this form of governance challenge—or reproduce?

Cardano’s CIP-1694 proposes a three-body on-chain governance system—a constitutional committee, a delegated representative body, and a stake pool operator body—each with authority to ratify or reject governance actions. As you read the proposal, consider whether this tripartite structure resembles any existing legal governance model (corporate, constitutional, or otherwise), and whether that resemblance is functional or merely cosmetic. The proposal requires at least two of the three bodies to ratify most governance actions: does that supermajority requirement protect minority participants, or does it simply require those seeking change to capture two bodies instead of one? And if governance authority is distributed across thousands of delegated representatives who owe no formal duties to delegators, what prevents them from acting in their own interest?

Cardano Improvement Proposal 1694: A First Step Towards On-Chain Decentralized Governance

¶1 We propose a revision of Cardano's on-chain governance system to support the new requirements for Voltaire. The existing specialized governance support for protocol parameter updates and MIR certificates will be removed, and two new fields will be added to normal transaction bodies for:

  1. governance actions

  2. votes

¶2 Every governance action must be ratified by at least two of these three governance bodies using their on-chain votes. The type of action and the state of the governance system determines which bodies must ratify it.

…

¶3 As with stake pools, any Ada holder may register to be a DRep and so choose to represent themselves and/or others. Also, as with stake pools, Ada holders may, instead, delegate their voting rights to any other DRep. Voting rights will be based on the total Ada that is delegated, as a whole number of Lovelace.

¶4 The most crucial aspect of this proposal is therefore the notion of “one Lovelace = one vote.”

…

¶5 We're heading into the age of Voltaire, laying down the foundations for decentralized decision-making. This CIP describes a mechanism for on-chain governance that will underpin the Voltaire phase of Cardano. The CIP builds on and extends the original Cardano governance scheme that was based on a fixed number of governance keys. It aims to provide a first step that is both valuable and, importantly, is also technically achievable in the near term as part of the proposed Voltaire governance system.

…

¶6 The on-chain Cardano governance mechanism that was introduced in the Shelley ledger era is capable of:

  1. modifying the values of the protocol parameters (including initiating “hard forks”)

  2. transferring Ada out of the reserves and the treasury (and also moving Ada between the reserves and the treasury)

…

¶7 In the current scheme, governance actions are initiated by special transactions that require Quorum-Many authorizations from the governance keys (5 out of 7 on the Cardano mainnet). Fields in the transaction body provide details of the proposed governance action: either i) protocol parameter changes; or ii) initiating funds transfers. Each transaction can trigger both kinds of governance actions, and a single action can have more than one effect (e.g. changing two or more protocol parameters).

…

¶8 Properly authorized governance actions are applied on an epoch boundary (they are enacted).

…

¶9 The following topics are considered to be out of the scope of this CIP:

Cardano Governance Notes and Questions

  1. Constitutional Architecture. CIP-1694 introduces a constitutional layer to ÐAO governance, distinguishing between on-chain mechanisms and the “contents of the constitution” (¶9). What is the function of a constitution in this context? Does this resemble a corporate charter, a foundational contract, or something more akin to a constitutional precommitment? How might a constitutional design shape governance legitimacy?

  2. Tricameral Governance. Though not detailed in this excerpt, Cardano’s governance requires actions to be ratified by two of three governing bodies. How does this tricameral structure compare to a corporate governance system involving shareholders, directors, and officers? What advantages or frictions arise when no single body can act unilaterally?

  3. One Lovelace, One Vote. The proposal assigns one vote per Lovelace (¶4), aligning voting power with economic stake. How does this compare to shareholder voting? What assumptions are embedded in equating ownership with control? Does this structure enhance legitimacy, or reproduce plutocracy?

  4. Delegation and Participation. Cardano allows tokenholders to register as DReps or delegate their voting rights (¶3). Does this resemble representative democracy, corporate proxy voting, or something else entirely? What incentives or barriers might affect participation in this system?

  5. Temporal Governance and Epochs. Cardano’s governance actions are applied on an “epoch boundary” (¶8). What is the institutional significance of batching governance actions at fixed intervals? Is this akin to board meetings or budget cycles—or something new?

  6. Code and Institutional Abstraction. Cardano’s model formalizes governance in code but abstracts key components—like committee membership and constitutional content—into off-chain processes (¶9). What does this separation of on-chain and off-chain governance reveal about the limits of automation? How might institutional law respond to this hybrid model?

  7. Designing for Constraint. The requirement that multiple bodies ratify actions (¶2) appears designed to prevent rash or unilateral changes. How does this compare to traditional doctrines of checks and balances? Is this governance by restraint—or inertia?

B. Centralization, Control, and Fiduciary Uncertainty

ÐAOs are often described as decentralized. But decentralization is not a binary condition—it is a question of structure, influence, and control. Tokenholders may vote on proposals, but who submits them? Code may automate outcomes, but who writes and updates the code? Treasury contracts may execute autonomously, but who holds the keys?

Many ÐAOs rely on a small set of founders, developers, or multisig signers to initiate and maintain governance. These actors may not hold formal titles or legal roles, but they often function as gatekeepers: proposing changes, managing interfaces, or shaping the flow of information. In traditional business entities, such concentrated influence would trigger fiduciary duties or managerial obligations. In a ÐAO, the legal categories are less clear.

This section examines the dissonance between the rhetoric of decentralization and the realities of operational control. It asks whether law should recognize fiduciary roles within ÐAOs, and if so, how those duties might arise, to whom they are owed, and how they could be enforced.

Wright and De Filippi argue that the apparent decentralization of blockchain governance is often illusory: core developers who can propose and implement code changes hold concentrated power over networks that millions of participants depend on, yet owe no formal fiduciary duties to those participants. As you read the excerpt, consider how the power to write and upgrade governance code compares functionally to the power of a corporate board. If a core developer unilaterally modifies a protocol in a way that benefits themselves at others’ expense, which existing legal doctrine—contract, tort, fiduciary duty, or securities regulation—is best suited to provide a remedy? And does the answer change depending on whether the affected participants knew the code was upgradeable when they joined the network?

Wright & De Filippi, Lex Cryptographica, 62 Stan. J. Int’l L. 123, 136–41 (2019)

¶1 Blockchain networks use software protocols to enforce rules automatically. Unlike traditional legal systems, which require human interpretation and judicial discretion, blockchain-based systems embed rules in code and enforce them mechanically. …

¶2 This “lex cryptographica” enables a form of governance without law. Smart contracts execute deterministically. Code becomes both the rule and the judge.

¶3 But the notion of complete decentralization is often illusory. In practice, most blockchain networks rely on core developers to write and maintain the protocol. These developers exercise considerable power, even if they lack formal authority.

¶4 The power to propose and implement code changes can have significant consequences. Developers can upgrade governance mechanisms, reallocate resources, or alter consensus rules. They do so without the checks and balances that constrain formal fiduciaries.

¶5 The absence of recognized legal obligations creates accountability gaps. When decisions are made through informal channels, or when upgrades introduce vulnerabilities, affected users may have no legal recourse. …

¶6 To the extent that developers act as de facto governors, it is worth asking whether they should be treated like fiduciaries. They may not hold office, but they often possess the same control—and the same capacity to harm or protect stakeholders.

Lex Cryptographica Notes and Questions

  1. Governance Without Office. The authors argue that blockchain developers can “exercise considerable power” without holding formal roles (¶3). If legal doctrines often follow formal structure, how should the law respond to this kind of informal control? Is functional influence a sufficient trigger for fiduciary responsibility?

  2. The Role of Developers. Developers propose upgrades, deploy code, and influence outcomes (¶4). Does this resemble the authority of directors or officers in a corporation? Or are developers more like independent contractors, architects, or scribes? What consequences flow from choosing one analogy over another?

  3. Accountability Gaps. The authors describe a lack of “recognized legal obligations” and note that users may have “no legal recourse” when governance decisions harm them (¶5). Should the law step in to close this gap? If so, by what mechanism—statutory duties, private ordering, or something else?

  4. Fiduciary Duties Without Entity Form. Traditional fiduciary duties arise in formal organizational contexts: board members, general partners, trustees. In a ÐAO, where there may be no such structure, can fiduciary duties arise based on control alone? If so, what standard should apply?

  5. Analogy and Fit. When legal innovation confronts novel organizational forms, courts often reason by analogy. Which analogies are most helpful here? Are developers like directors, like promoters, or like controlling shareholders? What work does the analogy do?

  6. Decentralization as a Shield. Some ÐAOs avoid formal structure precisely to evade regulatory classification or legal liability. If decentralization is used strategically to avoid accountability, should courts disregard it? How does this relate to doctrines like veil piercing or partnership by estoppel?

  7. Legal Recognition of Power. Should the law recognize de facto power in blockchain governance—even when that power lacks a formal legal wrapper? If so, what kinds of safeguards or standards should accompany it?

Wyoming and Utah have enacted statutory provisions that expressly eliminate default fiduciary duties for DAO participants—a legislative choice that is nearly unprecedented in corporate law outside of limited partnership contexts. As you read these two provisions together, consider what policy justification supports waiving fiduciary duties in a governance structure where token concentration can give a single holder decisive voting power. Wyoming’s provision permits fiduciary duties by contract but waives them by default; Utah’s provision preserves contract-based duties but waives tort-based ones: is that distinction meaningful in practice? And if fiduciary duties are waived, what other legal doctrine—if any—constrains a majority token-holder from extracting value at the minority’s expense?

Wyo. Stat. Ann. § 17-31-110(b) (2022)

No member of a decentralized autonomous organization shall have any fiduciary duty to the organization or any member except that the members shall be subject to the implied contractual covenant of good faith and fair dealing.

Utah Code Ann. § 48-5-307 (2023)

(1) Notwithstanding any other law, a developer, member, participant, or legal representative of a decentralized autonomous organization may not be imputed to have fiduciary duties toward each other or third parties solely by virtue of the person’s role…

(2) This does not affect any duties one has by contract or common law resulting from one’s conduct. If a person acts in a way that gives rise to legal duties under agency law or a specific agreement, those obligations remain enforceable.

Fiduciary Waivers Notes and Questions

  1. Default Duties Disclaimed. Both Wyoming and Utah permit DAOs to disclaim traditional fiduciary duties (Wyo. ¶1–2; Utah ¶1). What is the rationale for this approach? Should DAO members and developers be presumed to act in self-interest unless otherwise agreed?

  2. Contractual and Residual Duties. Utah preserves the possibility of duties “by contract or common law” (Utah ¶2), and Wyoming retains the implied covenant of good faith (Wyo. ¶1). Are these residual protections meaningful? How do they compare to fiduciary defaults in corporate and LLC law?

  3. Legibility to Courts. If a dispute arises—e.g., a self-dealing treasury proposal, or a code update that harms tokenholders—how should a court assess liability in a DAO that has disclaimed fiduciary duties? Does the absence of formal roles make legal analysis easier or harder?

C. Dispute Resolution and Blockchain-Based ADR

Dispute resolution is an invisible pillar of organizational life. Most entities function not because everyone agrees, but because they have a system for managing disagreement. In corporate law, that system is robust. Delaware, the most popular jurisdiction for business incorporation, is prized not only for its statutes but for its courts. The Delaware Court of Chancery offers expert adjudication, doctrinal clarity, and institutional stability—features that allow power struggles, fiduciary breaches, and governance breakdowns to be resolved without destroying the firm.

ÐAOs, by contrast, often operate without any formal legal forum. Many are not registered entities. Some exist only as smart contracts and token-ledger communities. When a dispute arises—a contested vote, a malicious proposal, a treasury drain—there may be no board, no officer, and no court with jurisdiction. This absence makes alternative forms of dispute resolution not merely useful, but foundational. Blockchain-based arbitration protocols like Kleros or Aragon Court attempt to fill this vacuum, offering decentralized adjudication mechanisms that promise transparency, incorruptibility, and procedural integrity.

These systems do more than resolve disagreements. They attempt to substitute for the legal infrastructure that makes incorporation attractive in the first place. If a ÐAO can credibly enforce its own rules, it may not need Delaware. But whether these on-chain systems deliver real governance—or only the appearance of process—remains an open question.

Kleros proposes to resolve disputes arising from smart contracts through a decentralized arbitration system in which randomly selected token-holding jurors vote on outcomes, with incentives designed to encourage convergence on the “correct” answer. As you read the whitepaper, consider whether the Schelling-point incentive mechanism—rewarding jurors who vote with the majority—produces accurate decisions or merely popular ones. Kleros is designed to resolve disputes that “traditional courts cannot handle”: does the system actually lack the qualities of a court (impartiality, due process, the right to be heard), or does it simply organize those qualities differently? And if a Kleros decision is wrong—based on false premises or juror error—what legal mechanism, if any, can set it aside?

Kleros Whitepaper: Decentralized Justice for the Blockchain Era

Kleros Whitepaper (2019), available at [https://perma.cc/4V3J-S3XK]{.underline}

¶1 Kleros is a decentralized application built on top of Ethereum that works as a decentralized third party to arbitrate disputes in every kind of contract, from very simple to highly complex ones. It relies on game theoretic incentives to have jurors rule cases correctly. The result is a dispute resolution system that renders ultimate judgments in a fast, inexpensive, reliable and decentralized way.

¶2 Smart contracts are smart enough to automatically execute as programmed, but not to render subjective judgments or to include elements from outside the blockchain. Existing dispute resolution technologies are too slow, too expensive and too unreliable for a decentralized global economy operating in real time. A fast, inexpensive, transparent, reliable and decentralized dispute resolution mechanism that renders ultimate judgments about the enforceability of smart contracts is a key institution for the blockchain era.

¶3 Kleros is a decision protocol for a multipurpose court system able to solve every kind of dispute. It is an Ethereum autonomous organization that works as a decentralized third party to arbitrate disputes in every kind of contract, from very simple to highly complex ones. Every step of the arbitration process (securing evidence, selecting jurors, etc.) is fully automated. Kleros does not rely on the honesty of a few individuals but on game-theoretical economic incentives.

¶4 It is based on a fundamental insight from legal epistemology: a court is an epistemic engine, a tool for ferreting out the truth about events from a confusing array of clues. An agent (jury) follows a procedure where an input (evidence) is used to produce an output (decision). Kleros leverages the technologies of crowdsourcing, blockchain and game theory to develop a justice system that produces true decisions in a secure and inexpensive way.

¶5 Game theorist Thomas Schelling developed the concept of Schelling Point (also known as Focal Points) as a solution that people tend to use to coordinate their behavior in the absence of communication, because it seems natural or relevant to them. Schelling illustrated the concept with the following example: “Tomorrow you have to meet a stranger in NYC. Where and when do you meet him?”. While any place and time in the city could be a solution, the most common answer is “noon at the information booth at Grand Central Terminal”. There is nothing that makes noon at Grand Central Terminal a location with a higher payoff (any other place and time would be good, provided that both agents coordinate there), but its tradition as a meeting place makes it a natural focal point.

¶6 Based on the concept of Schelling Points, Ethereum founder Vitalik Buterin has proposed the creation of the SchellingCoin, a token that aligns telling the truth with economic incentives. If we wanted to know if it rained in Paris this morning, we could ask every owner of a SchellingCoin: “Has it rained in Paris this morning? Yes or No”. Each coin holder votes by secret ballot and after they have all voted, results are revealed. Parties who voted as the majority are rewarded with 10% of their coins. Parties who voted differently from the majority lose 10% of their coins.

¶7 SchellingCoin mechanisms have been used for decentralized oracles and prediction markets. The fundamental insight is that voting coherently with others is a desirable behavior that has to be incentivized. The incentives design underlying Kleros is based on a mechanism similar to SchellingCoin, slightly modified in order to answer to a number of specific challenges regarding scaling, subjectivity and privacy to make agents engage in adequate behavior.

¶8 Alice is an entrepreneur based in France. She hires Bob, a programmer from Guatemala, on a P2P freelancing platform to build a new website for her company. After they agree on a price, terms and conditions, Bob gets to work. A couple of weeks later, he delivers the product. But Alice is not satisfied. She argues that the quality of Bob’s work is considerably lower than expected. Bob replies that he did exactly what was in the agreement. Alice is frustrated. She cannot hire a lawyer for a claim of just a couple hundred dollars with someone who is halfway around the world.

¶9 What if the contract had a clause stating that, should a dispute arise, it would be solved by a Kleros court? Kleros is a decentralized application built on Ethereum. After Bob stops answering her email, Alice taps a button that says “Send to Kleros” and fills a simple form explaining her claim. Thousands of miles away, in Nairobi, Chief is a software developer. In his “dead time” on the bus commuting to his job, he is checking Kleros Court website to find some arbitration work. He makes a couple thousand dollars a year on the side of his primary job by serving as a juror in software development disputes between freelancers and their clients. He usually rules cases in the Website Quality subcourt. This court requires skills in html, javascript and web design to solve disputes between freelancers and their customers. Chief stakes 2000 PNK, the token used by Kleros to select jurors for disputes. The more tokens he stakes, the more likely is that he will be selected as juror.

¶10 About an hour later, an email hits Chief’s inbox: “You have been selected as a juror on a website quality dispute.” He logs into the Kleros Court platform and reviews the evidence submitted by both parties. After careful consideration, he casts his vote. Once the voting period ends, the majority decision is enforced by the smart contract, and the dispute is resolved.

…

Kleros Notes and Questions

  1. Incentivized Truth. Kleros relies on game-theoretic incentives to align juror behavior with majority judgment (¶6–¶7). Does this approach approximate the deliberative logic of a traditional court—or replace it with something else entirely? What are the risks when “truth” is defined by coherence with the crowd?

  2. Procedural Form Without Legal Form. The Kleros process mimics key features of legal procedure: evidence, jury selection, deliberation, enforcement (¶3–¶4, ¶10). But it does so without courts, statutes, or appeals. Is this adjudication—or simulation? How should we evaluate its legitimacy?

  3. Juror Expertise and Decentralization. Jurors like “Chief” self-select into subcourts based on their skill set, staking tokens for eligibility (¶9). Does this create a meritocratic dispute system—or merely a market for judicial services? What assumptions does it make about fairness, identity, and access?

  4. Global Enforcement Without Law. Kleros purports to offer binding decisions without relying on territorial legal systems (¶8–¶10). But what happens if one party refuses to comply, or if the protocol fails to execute properly? Who is ultimately responsible for enforcement?

  5. Substituting for State Institutions. In your view, does Kleros function as a substitute for state-backed courts, as a complement, or as something entirely different? What does its emergence suggest about the feasibility of non-state institutional governance?

  6. Opportunity vs. Illusion. In low-stakes, cross-border disputes (like Alice and Bob’s), traditional legal systems are often inaccessible (¶8). Does Kleros solve this problem—or shift the burden to users to trust a process with no legal backstop?

  7. Delaware Without Delaware. This chapter suggested that Delaware’s dominance in corporate law rests in part on its dispute resolution infrastructure. Does a tool like Kleros lower the institutional barrier to forming ÐAOs outside of legal entity form? Or does it fail to deliver the same procedural and normative guarantees?

D. Governance Failures and Structural Breakdown

All governance systems are tested by failure. Boards mismanage, partners deadlock, shareholders disengage. The law anticipates these breakdowns and offers remedies: derivative suits, judicial dissolution, fiduciary duty claims, buyout rights. These doctrines are not just about resolving conflict—they are structural tools for preserving institutional coherence when things go wrong.

ÐAOs offer fewer such tools. When smart contracts misfire, when proposals are malicious, or when whales vote themselves control of a treasury, there may be no legal remedy, no fiduciary to sue, and no court with jurisdiction. The ÐAO may be technically functioning even as it collapses as an institution. Some failures are well-known—the 2016 ÐAO hack and the Ethereum hard fork that followed. Others are slower: persistent governance apathy, concentrated control, treasury depletion, or fork-based governance threats.

This section examines how ÐAOs fail—and what, if anything, law can do about it.

In June 2016, an attacker exploited a recursive bug in The DAO’s smart contract to drain approximately one-third of its ether treasury—roughly $60 million at the time. The attacker posted a public message arguing that the exploit was not theft because the code permitted the transaction. As you read the excerpt, consider whether that argument is legally or morally coherent: does “the code permitted it” satisfy the requirements of a valid defense to conversion or theft? The Ethereum community ultimately resolved the crisis through a hard fork that reversed the transaction—overriding the “code is law” principle by social consensus: what does that resolution reveal about the actual locus of governance authority in a nominally decentralized network? And does the hard fork create a precedent that undermines the credibility of future immutability promises?

Rodrigues, Law and the Blockchain, 104 Iowa L. Rev. 679, 704–706 (2019)

¶1 Ironically, the split-DAO mechanism intended to protect the minority carried within it the seeds of the DAO’s undoing. On June 12, [Slock.it]{.underline} member and Ethereum co-founder Stephen Taul announced that a “recursive call bug” was found in the DAO’s code. In essence, the problem was that it allowed a requester of tokens to receive tokens in a split DAO without updating the requester’s balance before the tokens were sent. …

¶2 The concerns over this bug proved fatal when, on June 17, 2016, someone took advantage of the recursive bug and siphoned $50 million of ether into a split-DAO. While most media outlets characterized this attack as a “hack,” an open letter purporting to be from the perpetrator of the attack disagreed:

I have carefully examined the code of The DAO and decided to participate after finding the feature where splitting is rewarded with additional ether. I have made use of this feature and have rightfully claimed 3,641,694 ether, and would like to thank the DAO for this reward.

¶3 The smart contract that had created the DAO thus sowed the seeds of its undoing. The founders had no contractual way to address the hack. Neither they, nor anyone else, could reverse the transaction and restore the split DAO funds to the main DAO account.

¶4 Yet one way out remained. If enough of the Ethereum network agreed to it, the Ethereum team could release a new version of the underlying blockchain—altering the ledger to reverse all of the DAO exploiter’s transactions. This “hard fork” would split the blockchain into two chains: the original chain on which the split DAO occurred, and the revised chain that would erase those transactions. This hard fork solution restored the money siphoned off, but also undermined the central premise and promise of the DAO—that the underlying code constituted the unalterable “law” of the DAO, upon which all participants could rely.

¶5 The 2016 DAO thus presented an existential crisis. The hard fork proposal created controversy within the Ethereum community. Ultimately, the fork was supported by a supermajority of ether holders. The Ethereum network erased the blockchain from the point of the token diversion forward. All original DAO investors were refunded, but the hard fork effectively led to the dissolution of the DAO. Ethereum Classic continues as a separate chain reflecting the original ledger.

DAO Hack Notes and Questions

  1. Code as Law? The DAO was built to operate without legal intervention—its creators promised that code would govern and disputes would be resolved algorithmically (¶3–¶4). What does the hard fork reveal about the limits of that vision? Was the problem technical, institutional, or philosophical?

  2. Governance by Fork. The Ethereum community resolved the crisis not through votes within the DAO, but through a hard fork supported by a majority of ether holders (¶5). Is forking a form of governance—or a substitute for it? How does it compare to dissolution, buyouts, or shareholder revolts in traditional entity law?

  3. Responsibility Without Role. The code vulnerability was exploited by someone who claimed to have simply “used the DAO as written” (¶2). If no one breached a legal contract, who, if anyone, should bear responsibility? Should developers, founders, or tokenholders be liable for losses in code-executed systems?

  4. Legal Remedies in a DAO. Rodrigues notes that “the founders had no contractual way to address the hack” (¶3). What recourse—if any—should a DAO provide when its internal mechanisms break down? Can traditional remedies like injunction, restitution, or reformation apply?

  5. Immutability and Institutional Trust. The Ethereum fork reversed transactions to restore funds (¶4–¶5), but in doing so, it also undermined the premise that the ledger was immutable. Is immutability a virtue or a constraint in blockchain governance? How does it relate to trust, legitimacy, and institutional memory?

  6. Crisis as Revealer. What did this episode reveal about decentralization, control, and collective action in DAOs? What institutions—formal or informal—stepped in to resolve the breakdown? What lessons does this offer for how DAO governance might fail in the future?

Kaal examines several high-profile DAO failures—Anubis, Snowdog, Build Finance—in which the organizational structure that was supposed to prevent concentrated control instead facilitated it. As you read the excerpt, consider whether these cases falsify the proposition that decentralized governance reduces agency costs, or whether they merely illustrate that decentralization requires better design. The excerpt describes “inside rug pulls” in which governance token concentrations allowed insiders to pass self-dealing proposals: if the governance mechanism itself can be captured, is the DAO form structurally distinguishable from a corporation with a controlling shareholder? And which legal doctrine—if any—provides the minority token-holders a remedy after the treasury has been drained?

Wulf Kaal, DAO Fallacies, SSRN Working Paper No. 4067783, at 17–18 (2022)

¶1 The most common DAO myth is that they are inherently resistant to failure because of decentralization. At their best, DAOs replace large parts of centralized human decisionmaking with micro-democratic, attack-resistant governance. At their worst, DAOs result in scams, insider abuses, and governance structures that invite collapse. …

¶2 Anubis DAO and Snowdog DAO provide examples of abuses where core teams failed to maintain integrity. But inside rug pulls are not the only exploitative mechanism. DAOs can also be exploited from the outside when governance relies on fungible tokens. The Build Finance DAO provides a prominent example.

¶3 Build Finance labeled itself a community-run venture builder. Its governance allowed proposals and control to be executed through token-weighted voting. In February 2022, a malicious actor acquired a sufficient token stake to pass a proposal transferring treasury control and contract permissions. The proposal succeeded through the DAO’s normal governance process.

¶4 The attacker drained the treasury and removed control from prior maintainers. The DAO’s social channels confirmed the takeover and the DAO effectively ceased to operate. No code vulnerability was exploited. The system performed as designed—but failed as an institution.

¶5 The Build Finance DAO demonstrates that token voting alone provides no protection against capture. DAOs may function according to their governance rules while still being deeply fragile. Fungible tokens traded on exchanges make DAOs susceptible to hostile takeovers, treasury looting, and long-term collapse.

¶6 The DAO Fallacy is the idea that governance can be solved purely through code or voting procedure. Effective governance requires safeguards, constraints, and institutional memory—none of which can be fully encoded in a smart contract.

Here is the [DAO Fallacies] Notes and Questions section, written to accompany the expanded excerpt from Kaal’s DAO Fallacies and formatted in iA Writer style:

DAO Fallacies Notes and Questions

  1. Governance by Design. Kaal critiques the belief that smart contracts and token voting can ensure effective governance (¶1, ¶6). Why is this idea so attractive to ÐAO architects? What assumptions about human behavior, incentives, or law underlie the DAO Fallacy?

  2. Functioning Yet Failed. The Build Finance DAO operated as designed: proposals were submitted, votes were cast, and the treasury was looted (¶3–¶4). Can we call this a “failure,” or is it the system doing what it was meant to do? How should law treat an organization that functions procedurally but fails institutionally?

  3. Capture Through Fungibility. Kaal emphasizes that tradable governance tokens create takeover risks (¶5). Is this risk different from corporate control contests involving shares? What, if anything, protects a ÐAO from being acquired and drained by someone who simply buys enough tokens?

  4. Internal vs. External Threats. Some governance failures arise from insiders (as with Anubis or Snowdog); others from external actors exploiting open voting rules (Build Finance) (¶2). Should governance systems prioritize one type of threat over the other? Can they protect against both?

  5. Safeguards and Legibility. Kaal calls for “safeguards, constraints, and institutional memory” (¶6). What might those look like in a ÐAO context? Who would design or enforce them—and how can they be made legible to courts or regulators?

  6. Legal Recognition of Fragility. If law continues to defer to the procedural validity of token votes, does it risk legitimizing institutional collapse? What doctrines—if any—could help courts or lawmakers distinguish between legitimate governance and systemic failure?

A ÐAO can raise capital, deploy assets, vote on decisions, and execute contracts. It can have contributors, developers, community managers, and treasurers. It can fork, rebrand, issue governance tokens, and adopt bylaws. In functional terms, it can look like a business organization, act like a business organization, and compete with business organizations—without ever becoming one in law.

This chapter has shown how ÐAOs operate at the boundary of legal form. Some are default general partnerships, exposing their members to joint liability. Others wrap themselves in LLCs or unincorporated nonprofit associations, seeking limited liability and legal personhood. Many operate entirely outside of formal legal categories, using smart contracts and token-based governance to create internal structure and external action. They achieve organizational function—but without formal legal form.

That lack of form has consequences. Courts may impose liability using default rules not designed for code-based systems. Developers may exercise control without fiduciary duties. Token votes may authorize actions that are procedurally valid but institutionally catastrophic. And when governance fails—through apathy, malicious proposals, or design flaws—there may be no legal remedy, no equitable constraint, and no judicial oversight.

Yet legal form was never the only source of order. Law has long responded to informal groups, de facto arrangements, and organizational innovation. ÐAOs present an old puzzle in a new shape: how to allocate rights and responsibilities when people act together under a common banner, but without the traditional trappings of entity law. They force us to ask whether business organization doctrine can stretch to fit the ÐAO—or whether new forms are needed to catch the new code.

PrismDAO was designed to coordinate funding for open-source climate tools through on-chain governance, but it experienced the governance pathologies you have now studied: declining participation, whale accumulation, and a contested treasury transfer. As you work through the hypothetical, apply the doctrines from this chapter: would the founding contributors have a claim under Sarcuni’s partnership theory, under the applicable DAO statute if one were elected, or under general business-association principles? Consider whether the Unocal or Revlon frameworks—developed for corporate defensive measures and change-of-control transactions—have any analog in DAO governance, and whether token-holder agreements should be interpreted as operating agreements under LLC law. What structural reforms, if adopted at PrismDAO’s founding, could have reduced the risk of each failure mode the hypothetical describes?

Hypothetical: PrismDAO

PrismDAO was launched to coordinate funding for open-source climate data tools. It operated through a set of smart contracts deployed on the Ethereum blockchain, with no LLC or other legal entity wrapper. PrismDAO issued PRSM tokens to early contributors and later sold additional tokens via a bonding curve mechanism. Tokenholders could vote on governance proposals and delegate their votes to others.

Key decisions—such as treasury expenditures, protocol upgrades, and data licensing terms—were subject to token-based votes, executed through a governance contract. A small group of developers retained access to the front-end interface and the GitHub repository. Treasury withdrawals required approval by a multisig controlled by five signers selected through informal community consensus.

Over time, participation declined. Most tokenholders stopped voting. A large holder named Ocean Labs quietly acquired additional PRSM tokens on secondary markets and proposed a new governance measure to transfer 80% of the DAO’s treasury to fund Ocean’s proprietary climate modeling API. The proposal passed by a slim majority of participating votes, just exceeding quorum. The multisig signed off, and funds were transferred.

Several founding contributors were outraged. They argued that the vote was orchestrated unfairly, that the treasury transfer violated PrismDAO’s founding vision, and that Ocean Labs should be liable for self-dealing. Ocean Labs responded that everything was done according to the rules encoded in PrismDAO’s contracts—and that PRSM holders who disagreed could fork the project.

You represent one of the original contributors, who is considering legal action. Prepare a brief memo identifying possible claims, defenses, and legal uncertainties. In particular, consider:

Conclusion: Law at the Edge of Form

Decentralized Autonomous Organizations occupy an uncomfortable position in the architecture of business law. They perform organizational functions—raising capital, deploying assets, voting on decisions, executing contracts—yet they resist the formalities that law uses to distribute rights and assign duties. This chapter has mapped the doctrinal consequences of that resistance: courts impose general partnership liability on participants of unregistered ÐAOs, regulators apply securities and commodities frameworks designed for very different entities, and state legislatures respond with statutes whose approaches diverge in fundamental ways.

The doctrinal tensions examined in this chapter—liability without registration, governance without fiduciaries, code without accountability—are not merely technical. They reflect a deeper disagreement about the proper role of legal formality in organizing collective action. Wyoming and Tennessee defer to code and contract; Vermont preserves traditional fiduciary structure; Utah mandates transparency. Federal securities doctrine looks for economic substance and investor dependence regardless of what a smart contract says. No jurisdiction has yet produced a stable synthesis. The cases that follow—in this chapter and beyond—are the laboratory in which that synthesis is being forged.

For students entering practice, the lesson of this chapter is practical as well as theoretical. A client who deploys or joins a ÐAO without legal counsel does not thereby escape the law; the law finds them through general partnership doctrine, securities enforcement, or contract claims that smart-contract code cannot disclaim. The attorney’s task is to translate the blockchain into cognizable legal categories and to advise on the structuring choices—registration, fiduciary waivers, dispute resolution, transparency mechanisms—that statutes now make available. Corporate numeracy and code literacy, separately insufficient, are together indispensable.