Decentralized Autonomous Organizations (DAOs) Before State Courts. How Can Private International Law Keep Up With Global Digital Entities?

Madalena Perestrelo de Oliveira and Antonio Garcia (Eds), DAO Regulation: Principles and Perspectives for the Future, 2023.

24 Pages Posted: 28 Jun 2023

Date Written: June 27, 2023

Abstract

This paper examines civil and commercial disputes involving Decentralized Autonomous Organizations (DAOs) and the complex questions of private international law that arise. The legal capacity of a DAO to be a plaintiff or defendant in court varies across jurisdictions, highlighting the need to determine the applicable law to a DAO. A distinction must be made between different types of DAOs. There are currently a few jurisdictions, notably in the United States, that have enacted DAO legislation defining a legal status for such entities. Those regulated DAOs are governed by both computer code and company law. In other jurisdictions, existing company structures can be used to offer a legal wrapper to DAOs. However, the vast majority of DAOs currently in existence are constituted and solely governed by code, posing challenges in bringing them before a state court.

The paper explores recent case law and the difficulties in identifying the appropriate party to sue when pursuing a DAO. Using Swiss law as a basis, it examines the qualification of DAOs under private international law and the challenges of anchoring a global digital entity to a specific jurisdiction. The article illustrates these challenges through three types of disputes: governance, contractual, and tort-related. Determining jurisdiction over a DAO-related dispute requires applying private international law rules. Although the paper assumes Swiss courts for convenience, the reasoning can be applied to different legal systems due to the similarities in conflict of jurisdiction rules. However, challenges persist even if a court has jurisdiction and renders a decision, as enforcement may prove difficult, especially on-chain. Additionally, initiating legal proceedings against a DAO presents issues with serving court documents. DAOs offer opportunities for innovative electronic methods of document service, but specific requirements and restrictions exist for international service of documents. Practical difficulties may arise, making it impractical or unattainable to serve court documents on the defendant.

The analysis concludes that state courts currently struggle to ensure reliable access to justice in disputes involving DAOs. As an alternative to state courts, opting for Alternative Dispute Resolution (ADR) mechanisms, such as Blockchain-based Dispute Resolution (BDR), can offer a simpler and more efficient solution depending on circumstances. In any case, entrusting dispute resolution to a BDR mechanism avoids the complexities associated with state court procedures.

Keywords: Decentralized autonomous organization, DAO, Decentralized finance, DeFi, Smart contract, Dispute resolution, Access to justice, Jurisdiction, Online dispute resolution, ODR, Blockchain dispute resolution, BDR, Cryptoeconomy, Justice, Governance, Recognition and enforcement of decisions

JEL Classification: K11, K12, K13, K19, K20, K22, K33, K41, K42, K49, M13, M16, M21, M52

Suggested Citation

Guillaume, Florence, Decentralized Autonomous Organizations (DAOs) Before State Courts. How Can Private International Law Keep Up With Global Digital Entities? (June 27, 2023). Madalena Perestrelo de Oliveira and Antonio Garcia (Eds), DAO Regulation: Principles and Perspectives for the Future, 2023., Available at SSRN: https://ssrn.com/abstract=4492934 or http://dx.doi.org/10.2139/ssrn.4492934

Florence Guillaume (Contact Author)

University of Neuchatel ( email )

1, A.-L. Breguet
Neuchatel, CH-2000
Switzerland

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