The UKJT came out with a review of DAO structures. Whilst a DAO has been characterised as discord + (multi-sig) bank a/c the fundamental issue when you provide layers of sophistication/specialisation is the principle-agent problem. How do you “trust” the outsourcing of financial management, and closely related is the decision between internal controls and external monitoring (efficacy) & transaction costs (efficiency).
For a dedicated treasury, the space of candidates is jurisdiction (US, EU, UK+commonwealth, IN/CN etc), and structure (fund of funds, unit(ary) trust, LLP, etc), as well as degree of recourse to existing legal systems which can be (as per paper)
- full wrap …basically an existing structure Iike FoF then basically say the DLT is the definitive recordat
- partial cover … replace certain governance/business functions with specific mechanism and light touch governance … example might be a LLP where you have a contestible market for general partners (passive index, active yield, venture, hedge) but use say 0xSplit for the limited partners to mix liquid cash-equiv and med-long term investments to match outgoings (eg specific drawdowns for Foundation)
- tether … use a loose reference to law of equity (unit trusts) but control the selection of fit and proper persons for trustee and portfolio supervisors.
- grey zone … no legal presence nor recourse. Omniterritory creates headaches in that traditional conflict of (private international law) doesn’t work as there are too many cross-border transactions.
It forms a spectrum (using co-op as illustrative)
Even if you use a traditional structure such as corporate FoF, it is possible to contract out liability (depending on operational agreements). Issue with full wrap is that it comes with a bundle of other legislation such as banking secrecy, corporate transparency, licensing as money transmitter, etc. The main challenge is to fix blame for economic torts (harm) whether individual, AIgorithm or entity
In England and Wales, the general rule for attributing liability to companies is the “identification principle”. This states that where a particular mental state is required, only the acts of a senior person representing the company’s “controlling mind and will” can be attributed to the company – usually a small number of directors and senior managers. However, under the Economic Crime and Corporate Transparency Act 2023, section 196, where a senior manager of a body corporate or a partnership, acting within the scope of their actual or apparent authority, commits one of a number of economic crimes (including theft, fraud, false accounting, money laundering, or bribery) the organisation is guilty of the offence
Note that deliberately not stating the duties and powers, then depending on the nexus, default rules might apply. As one US judge acerbically noted, if a DAO claims it exists everywhere (and thus nowhere specific) then his courtroom is just as good as anywhere. In belief that DAO-specific legislation is premature (t this time), UK accepts that a hybrid form (analogous to captive cell companies) of
digital legal entities: arrangements where an incorporated legal entity adopts digitalisation through the use of smart contracts or DLT in its operations or governance.
Read section 6.109 onwards for specific commentary on treasury functions. A high-level view of the spectrum
Full Wrap
Partial Cover
Digital Captive SubCell
Alegal (grey zone)
Feel free to incorporate the above into your report by reference