New Interest in DAOs Prompts Old Question: Are They Legal?

"Ethereum is only now starting to shrug off its 'PTSDAO,'" tweeted Ameen Soleimani, the SpankChain CEO and creator of a now-$1.2 million decentralized autonomous organization called the MolochDAO. After an infamous hack drained "The DAO" of roughly $60 million in 2016, developers have been hesitant to kickstart new projects in its likeness.

DAOs were the "It" topic at recent ethereum gatherings in Berlin.

One lingering question still remains: Is a for-profit DAO legal?

ConsenSys-backed blockchain startup OpenLaw is looking to answer that question, unveiling earlier this month a new vision for DAO projects focused on legal compliance.

OpenLaw's so-called "Limited Liability Autonomous Organization" or LAO project aims to conform with guidelines set forth by the U.S. Securities and Exchange Commission established in the wake of the 2016 DAO hack.

Done correctly, Wright said, DAOs do have the potential to replace venture capital and private equity firms.

"In The DAO hack, where one third of the ETH was spun into a child DAO by the attacker there was a pretty decent argument to be made that anybody damaged could sue anybody involved. That would have been disastrous," Hinkes said.

Removing such uncertainty is one of the key benefits to wrapping DAOs within the limited liability framework, Wright said.

At the same time, regulatory clarity also comes with stricter policies and rules as to how a legal DAO can and cannot operate.

At the very least, Wright's LAO project represents an important step in the evolution of DAOs, one that could spur further experimentation with bringing decentralized technologies into harmony with current legal constructs.