The (legal) laws of form

Transcript

is hello everyone hey hi thanks for being here i'm gonna speak to you about dao's and state legal systems so compulsory disclaimer this is not legal advice so i'm a lawyer qualified in switzerland and usually do

give more of legal talks this is um more of a law and philosophy talk so please do not rely on what i'm saying in order to design your projects get your own lawyers get your own legal advice but nonetheless i hope that this talk will be useful for you to give you another perspective on dao's and state legal risk mitigation what are doubts so we're i'm going to talk about those uh without defining them and a lot of people have tried to define what dows are there is no one single definition every definition focuses on one feature or one aspect of those and i don't think

that it is even possible to define it in a comprehensive and exhaustive way what i'm gonna do nonetheless is i'm gonna focus on daos as a a tool for civilization so i strongly believe that those can positively disrupt if they are used as such worldwide coordination of people their access to resources and the global distribution of wealth and we have already seen this happening with the whole d5 space those can also also influence politics culture and moral norms and two examples come in mind for this would be the free rostow or the assange dao so those can have

a great impact for humanity or society if used as such and this definition that i put on the slide does also reiterate what i just said and this comes from the lex node substack where they say that dao is an inherently anarchist concept so the autonomous in the term dao is not meant to be automated what many people may think and which is not also excluding automation but it is clearly and truly autonomous true thousand are not meant to be existentially dependent on a state charter or limited to compliance with a particular set of laws

so those are the space outside of state laws and nonetheless though people feel constrained when they have a dow project by what i call in this slide legal risk fault so people come to me projects come to me often they have a doll project they loosely call many things down but this is another question and uh they want to have some form of legal risk mitigations they are afraid of some form of liability of some form of consequences because of the way that they designed or they hope to design their project and

in order to deal with legal risk mitigation broadly there are many strategies that one can adopt and it depends a lot on one's posture for instance with regards to our own legal risk profile the actual risks that they are exposed to where they live and so on but in order to clarify what is even this risk we're talking about i think we must absolutely answer the question of what is law even and i've searched i googled the definition of law and the dictionary definitions usually say that law are rules created by a nation-state and enforced by

a government upon its constituent so usually law is understood and i think the way we use law in language has also the same meaning as what i call state law so law is understood as emanating from a state and being enforced from said state however i think that we can also look at law as a way broader concept than only state law and this is an excerpt from the wikipedia article on law that says that law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior with its precise definition a matter of long-standing debate so law is greater than state law it does

encompass obviously state law and its bureaucratic system that helps enacting those rules and enforcing them but it also encompasses all other moral and normative systems impacting our lives and examples of such systems could be cultural laws or norms religious norms communities even our own self-moral norms that we impose on ourselves and our behavior so law is way greater than only state law however there is this law equal state law meme that has some purpose and consequences that should be at least acknowledged

by thinking that law equals state law what we're actually doing is that we believe that state law is this all-encompassing thing that would govern on every single action or thought of all of us however this is not exactly true and by having this in mind every time we talk about law or if you want to be more precise about state law we will remove this blind spot of thinking that there is this one system to which we are all subject and those here um provide a form of negative space which is not uh prone to interference by said state law

those are not comprehensible by state law they are not state law cannot communicate with it and this has been seen in many different ways throughout the life of crypto so far and one of examples of this would be for instance tokens and how they are qualified or understood by state law and there are always ongoing debates states try to fit tokens in one of the boxes that they do understand in order to regulate it but this does not exactly fit like is token money is crypto um a security is it a goods or a service is it a mix of those it's oftentimes other than some few exceptions um not a

clear answer so state law has a very difficult time to communicate without technology and everything that comes with it so those could be understood as this negative space or this autonomous zone or even parallel society for those who are um who know about this notion so if we understand dows as this negative space then we can ask ourselves the question of how does thou posture with a vis-a-vis state laws and here i broke it down into three different ways of posturing and the first one would be just to remain outside of state law all together so to remove all form of communication

between state law and the dao and this could be done in many ways and here are some examples one of those would be to just remain fully unincorporated not belonging to any form of understood um form of organization by state laws it could be another another way of doing this could be using code is law or governance minimization for which i'm not necessarily an advocate but it does serve this purpose of making the technology non-capturable using counter economics could be another ideological perhaps way to remain outside of state law and i added this last

example of just having an anonymous team making it um extremely difficult for state law to capture um this the space of the dao this we've seen already happening um in the space i think we're gonna see way much more ones we have actually anonymous dows unchained then there is the other end of the spectrum spectrum which would be full subjugation to state law and that could be for instance that a corporate entity would spin off a dao or that the dao itself would wrap himself itself into a legal entity and this is a trend that we've seen we are seeing way much more where this entity that is subjected to

one jurisdiction and the laws of said jurisdiction will have control over the treasury of that entity i added also over compliance because as a result of fraud or fear uncertainty and doubt around these state legal risk questions we've seen also several times uh projects that go even further than what they must do to comply and limit kind of their risk exposure and then there is this in between space where um there are ways to try to bridge between the dow world and the state law world

and it's again quite imperfect because um it's very hard to create this translation method between these two um systems that are not necessarily compatible and this could be done through lobbying and we've seen that with koala which is a legal think tank that published i think two years ago or three years ago the koala model law on daos and if this law is adopted by nation states then it would give some recognition to those and maybe even some limited liability to them but it comes with some obligations obviously for those as well regulators try to bridge uh between these two systems by creating form of corporations where thou can easily plug

into but again it comes with a lot of trade-offs daos can use legal entities for parts of the project and not the entire project otherwise it would be full subjugation but for parts of the project and because of various needs that they have or individuals who are interacting with the dao can also put an entity between themselves and the dao as a buffer in case something happens it's only this entity that would suffer from civil liability and not their own net worth and it's possible obviously to move between these three realms with more or less difficulty depending on which side we are navigating

but there are obviously a lot of pros for using corporate structure as well as a lot of cons and i've listed some of them here and i think it's interesting to have a look at them there are way more and it's very jurisdiction specific and project specific so this is just to give a broad idea but the pros i think the main one is the limited liability shield so by having this entity people hope that in case something happens and um only this entity will be liable and not their own personal assets for instance which is obviously quite important uh protection then it helps corporate

structures help having a relationship with legacy systems if you want to sign a contract where it needs a person or entity for it to do so then you can do it through corporate structures if you want to own physical things it's easier obviously if you have the right to own and this is given to corporate structures if you want to sue you have a standing in court if you're a legal person you can use state legal systems as a tool to further the mission of your dao it is obviously extremely useful even necessary before true decentralization so before there is we meet this threshold of decentralization that is actually undefined it's not very

clear when a doubt becomes sufficiently or is deemed sufficiently decentralized but let's keep that aside um before through decentration there is a concentration of liability and risk and power in the hands of a few and it's extremely important then to use whatever tool the state legal system gives us to manage that risk and lowers far so there is a lot of fear uncertainty and doubt because all of this space is new it's untested and by having a corporate structure we have also a bit more peace of mind cons it's hypothetical these have not been tested there is very few cases almost none from court

systems that tries all of this different various strategies and and structures it comes with a lot of bureaucracy and overhead obviously it diminishes the autonomy of the dao by subject subjecting it or parts of it to a jurisdiction because that that part or um that entity will have to abide by the rules of such jurisdiction that also may evolve and change and politics always evolve and change and are influenced by a lot of outside things that are out of our control and in case there is a dissonance between what the dow does and these norms to which it must abide uh there is recourses through the courts or regulators so it does

diminish autonomy which can lead to slowing down its potential and if there are trends in the legal risk medication space that are that that show later in time because there are new court cases or whatever that they were badly done or they did not serve its purpose then that can harm also the entire space i'm gonna hear briefly talk about two areas of fod in legal risk mitigation and um how actually it does impact a lot uh strategies of daos in um in whether or not they opt for a form of corporate structure

one of them is about general partnerships and i don't know if this is a thought that is important to me because of my own equal chamber of lawyers in crypto but i've put here this excerpt from a forbes article that was published recently and i'm gonna read it with you what is certain is that those are a palpable legal danger to themselves and everybody associated with them and folks who have something to lose should stay away from them entirely for now some bright lawyer is going to have to shoehorn dows into an existing legal structure or else the result that seems likely in this case everybody's liable as general partner will play itself out

so we often hear and lawyers also say that and we see it published all over the place that if a dao does not have a corporate structure it does not opt in for a specific corporate structure then the default fallback would be general partnership and what general partnerships means is that anyone who is considered a general partner and who is considered general partner is a big question mark but anyone who is considered a general partner would be fully liable for the liabilities of the dao and obviously if you have deep pockets your vc or whale your your own tokens uh your participating governance about that you

may worry about being held soul accountable for whatever liability the dao has in case things go sour so it is a form of fud because to my understanding and based on the research i've done and if anyone has any other information please come to me i'm really curious about this but no state court has yet said that dao's or such entities or such organizations sorry um are general partnerships so this is basically solely based on fudd spread maybe legitimately maybe not but it is extremely important i think to do the legal analysis of general partnership for every single dow because

it is not a default fallback in law there are still conditions that need to be met for a general partnership to exist and we have to see for whatever jurisdiction is most relevant to you what are these conditions and whether or not they apply because it may be very well possible that it does not apply either because state laws cannot understand dows and cannot put it in one box there are two cases that have been filed where the plaintiffs claim that the dao is a general partnership and these have been filed in the u.s in california and new york very recently i'm gonna i'm not gonna talk about it

now because it's gonna be a whole talk by itself but i'm gonna write a twitter thread putting some information resources for anyone who is interested in this case my personal opinion as i said is that daos are not necessarily general partnerships and we should do the analysis to know whether this thought is legitimate or not in any specific case another type of thought that is extremely present in the space is about economic sanctions and this is for various historical reasons as well but also because sanctions are becoming more and more visible now

russia is also under sanctions so the pool of people impacted just gets bigger and bigger over time i put this tweet here because i find it very interesting so basically bandex is imagine being so scared you correct your bully so the affair the office of foreign asset control of the united states that usually puts this sanction list and creates all of um and and points towards who is under sanctions also publishes ethereum addresses that are under sanctions and therefore should be blacklisted and this project has implemented this list of blacklists but has also realized that one of the addresses is invalid

but instead of just keeping it that way it went a step further corrected the address and and then corrected the list and implemented the the blacklist with the correct address and i find this example very interesting because it led to a lot of debates online and discussions about the legitimacy of of doing what this project did because um and people argue often that it was barely basically unnecessary to go this step further because this address blacklisting an address is basically impractically useless because anyone can spin off another one and use other methods to just

like control like go around the sanction and it leads to some form of absurd efforts deployed by projects to make sure that they are compliant while it's not necessarily the most efficient or legitimate way to do so the state of crypto law it's all gray and i postulate here that this is a feature and not a bug we should use this all gray zone in order to actually use the full potential that we can see or discover of those and i don't know what daos can achieve and i mentioned at the

very beginning that it is a tool for civilization and i gave some examples but i actually have very very narrow vision of what it can do just because i think we're so early and so difficult to understand the full potential it has but nonetheless we should give it space to deploy that potential and by doing so we should have in mind that law does not equal state law that the state law system cannot plug in directly into the dao system and there may be other ways to do just or legitimate actions without having to subjugate fully to one normative system thank you for listening

this is my twitter follow me [Applause] i don't know if i have time for questions thank you um i have a question about the uh quotas law the meme versus something like say bankruptcy law which is also me but it's interpreted as law right um can you go over what i i think i heard you say that you're not a big fan of well maybe i'm wrong code is law uh if you could go over that and also if you give us an opinion on ricardian

contracts riccardian contracts you know i'm sorry so so for getting recording contracts uh assuming writing something on a napkin is a contract right uh would you say that if you put into code uh such and such of a dow is a dao blah blah blah would that be admitted as law okay i'm gonna first answer the code is low question and and and then if if i can't remember exactly the second one i'll get to that as well so code is law i'm not an advocate for it i understand its purpose and i find it beautiful as well um in the context first and foremost of bitcoin because by having

this very strict um framework you make it uncapturable or very difficult to capture so because there is no governance governance cannot be abused for instance so there are these pros but there are also i think a lot of cons because the way i understand those is that it can provide this political space for people to get together coordinate together um debate on what they believe should be implemented as rules of that dao or like what products like what are the features of the products of that dao and by having a very good governance minimal system then you basically avoid

all of these discussions and you impose a system onto others so it may be functional and work but i don't think that it can um extend the the test of time and i feel like it's it could use some it could be useful for some form of projects but generally i would value more a political space of discussion more democratic system so that's for the first question the second question about contract so contracts what they mean by state law is depends on each jurisdiction and there are many different rules to meet for a contract to be valid so for instance if it's a contract of a real estate sale it has to be made by a notary in a written form

and so on if it's an employment contract in switzerland it can even be done orally so i can just be like do you want to work with me i pay you such and such for so many hours you say yes we already have a contract and there's already an employment relationship between us so what is a contract uh depends very much on the subject matter of the contract and the people who are impacted by this contract that determine what state laws are applicable putting terms and conditions basically in in a dow code if i understood what you meant could be valid uh but there is this big question of who will see that terms who will understand them do you need to be able to read the code do you need to be able

to audit it yourself do you need to be to be able to understand this concept in order to be bind by it or not so i i think that um it's not necessarily contracture in the common sense that we understand it hi um question on dispute resolution what do you think about platforms like cleris or argon court that have tried to sort of do this decentralized chords because i think like you said is it's very useful to plug into the legacy system for things like contracting

but uh yeah i'm just wondering why these decentralized chords haven't really taken off for a decentralized display resolution have you got any sort of thoughts on where you stand with that i'm not going to comment on on these projects directly but i think that having any form of dispute resolution tools that are opt-in can be useful if we look at them as tools and not necessarily as just so the same way as state legal systems are not necessarily just it does not represent justice i think that no other dispute resolution mechanism can by itself or maybe we should look at them as not representing justice and then if we understand that we can use them as tools so what we've

seen with them the ones that are unchained is that um it really very much depends on the incentives on what other incentives are also deployed spontaneously on top of it on other projects it is way much more complex i think than this just one court basically we go to that gives us an answer but at least i think that there is value in finding good dispute resolution systems that are enforceable because it just enables people to move on from a dispute onto something else but if we before even getting into the dispute understand that if something goes wrong then there is this recourse and this record has these um flaws

and these features then we can also use them very early on in order to preempt kind of these flaws being used against us okay thank you very much you