Decentralized Autonomous Organizations (DAOs) as Subjects of Law – the Recognition of DAOs in the Swiss Legal Order
79 Pages Posted: 30 Jan 2020
Date Written: October 10, 2019
Building on the architecture of smart contracts, new forms of entities similar to companies are now emerging from the blockchain environment, called Decentralized Autonomous Organizations (DAOs). DAOs let participants manage resources in a decentralized manner through predefined governance rules inscribed on a series of smart contracts deployed on a blockchain.
Taking the Swiss legal order as a framework, the author has attempted to determine whether the activities of a DAO have legal effects in Switzerland. The answer to this question depends on their recognition in the Swiss legal order. While the recognition of foreign DAOs governed by the laws of a State does not raise particular legal issues, DAOs that live on the Internet independently from any jurisdiction upset existing legal principles, which generates legal uncertainty.
Legal scholars have traditionally dealt with the issue of the recognition of DAOs by attempting to transform them into known legal concepts, either as a form of company of Swiss substantive law, or as a set of contractual relationships. The author suggests that DAOs should instead be recognized as foreign companies through private international law. This preferred pathway could possibly let DAOs exist in their present construct, while recognizing their legal effects within the Swiss legal order.
However, a strict interpretation of the private international law Act (PILA) leads to a dead-end for a majority of DAOs as, under the law, a company must be validly constituted under the law of the State it is governed by in order to exist in Switzerland. Building on the functional equivalence theory, the author introduces the concept of an online jurisdiction ruled by its code as a means to grant legal existence to DAOs living exclusively on the Internet. This new legal construct recognizes the code of a DAO as its governing law and the online space as its jurisdiction. As such, DAOs could be recognized in Switzerland as foreign companies and be subjects of rights and obligations.
Note: Master Thesis
Keywords: Blockchain, Decentralized Autonomous Organization, DAO, Private international law, Company law, Online jurisdiction, Functional equivalence
JEL Classification: K12, K22, K33
Suggested Citation: Suggested Citation