DC-Blockchain Implementation of the DAO Model Law:Challenges & Way Forward | IGF 2023

Morshed Mannan

The discussion surrounding regulations for Decentralized Autonomous Organizations (DAOs) encompasses various aspects. Incorporation fees, perceived as a form of taxation, pose challenges in establishing regulatory equivalence. These fees have been a recurring topic during the transposition process, evoking a negative sentiment.

Another area of contention is the verification of formation requirements in the DAO Model law. Different jurisdictions hold differing views on who should conduct the accreditation, leading to ongoing debates and a neutral sentiment on the matter.

Regulators face the task of applying existing laws to DAOs, which presents potential risks and unintended consequences. As regulators endeavor to enforce these laws, cases pertaining to DAOs may reach appellate courts, resulting in the emergence of case law related to this technology. This neutral sentiment underscores the uncertainty surrounding the outcome.

A key argument posits that decisions made in appellate courts may establish legal precedents that restrict innovation. This negative sentiment highlights the potential risks and unintended consequences of this approach.

To mitigate these risks, proponents advocate for a proactive regulatory approach, including the use of regulatory sandboxes. This proactive stance is seen as a means to shape laws in a manner that fosters innovation without impeding progress. A positive sentiment surrounds this argument, emphasizing the need to prevent harm and anticipate future risks.

Furthermore, regulators are encouraged to educate themselves about DAO technology prior to implementing laws. This sentiment stems from the belief that a thorough understanding of the intricacies of this technology is necessary for crafting effective regulations. Educating regulators would facilitate a smoother implementation process and contribute to the overall success of DAO regulation.

Jarrell James

The analysis explores the introduction of the Dow Model Law and the coalition group Koala. Koala is a multidisciplinary research and collaboration firm that brings together professionals from various fields such as law, academia, computer science, and entrepreneurship. They aim to understand the challenges and opportunities presented by decentralized technologies and their impact on the legal system and society.

Jarrell James acknowledges and appreciates the efforts of the coalition and panelists. Notably, Rick Dudley is praised for establishing cross-field technical standards, Fatemeh Panazera is recognized as the leading counsel, and Silke is commended for facilitating the Dow Model Law presentation.

The analysis delves into the legal recognition and interaction challenges faced by the decentralized technology space. Obtaining legal recognition is a major hurdle for entities operating in the decentralized space. The Dow Model Law offers a meaningful legal pathway to address these challenges and allows decentralized technology entities to interact with municipal authorities, corporations, and international coalitions. The development of the Dow Model Law took three years, highlighting its importance and thoroughness.

The analysis also explores regulatory challenges and privacy concerns related to Decentralized Autonomous Organizations (DAOs). Governments exhibit major hesitation in interacting with single entities or individuals in the decentralized space, and there are concerns beyond just liability. Additionally, regulatory challenges are likely to arise during the process of recognizing DAOs due to their unique characteristics.

The transparency of DAOs is discussed, with all transactions and payments being visible to participants. However, this transparency undermines privacy, leading to a quest to restore privacy within DAOs. Regulatory authorities lack understanding regarding the extent of transparency provided by DAOs and the tracking capabilities they offer.

Privacy is perceived as being anti-state in the digital space, creating conflicts with state objectives. The analysis emphasizes the importance of reconciling these ideological differences.

Furthermore, the analysis recognizes the significance of coordination and innovative solutions in the field of regulation. The efforts of Koala in developing novel solutions, along with the implementation of the Dow Model Law, are appreciated.

Lastly, the analysis highlights the role of civil societies and coalitions in effecting change in different jurisdictions. The frustration faced in movement and change across various legal systems is acknowledged.

Overall, the analysis provides a comprehensive overview of the Dow Model Law and the challenges faced by decentralized technologies. It emphasizes the importance of legal recognition, addresses regulatory challenges, privacy concerns, and advocates for the reconciliation of ideological differences. The role of civil societies and coalitions in effecting change and innovation is also emphasized.

Silke Noa Elrifai

Decentralized Autonomous Organizations (DAOs) offer a new way of organizing and coordinating global collaborations. They present large-scale coordination opportunities that align with the needs of an increasingly multipolar world. However, DAOs currently face significant legal uncertainties that impede their development. To address this, the proposed Model Law aims to grant DAOs legal personality and capacity, enabling effective interaction with the off-chain world. The Model Law is based on the principles of functional equivalence and regulatory equivalence. While it seeks to provide solutions for taxation issues and legal certainty, the requirement for DAOs to register as global entities poses challenges. Some jurisdictions, such as Utah, have not adopted this approach, hindering the implementation of the Dow Model Law. Efforts are needed to improve the Model Law, especially regarding registration requirements, to make it more feasible for jurisdictions to adopt. Taxation concerns are also an obstacle in the interaction between jurisdictions and DAOs, with jurisdictions emphasizing potential tax benefits. Silke Noa Elrifai suggests an innovative approach to addressing taxation rules for DAOs. Additionally, the transparency of DAOs undermines privacy, and efforts should be made to reintegrate privacy into the model while maintaining transparency for regulatory purposes. The Model Law may not be suitable for all jurisdictions due to its issues, and the default characterization of DAOs as general partnerships or unincorporated associations with joint and several liabilities needs to be addressed. Overall, addressing legal uncertainties, registration requirements, taxation concerns, privacy issues, and the default characterization will support the growth and development of DAOs while respecting legal standards and protecting individual rights.

Rick Dudley

Regulators have faced criticism for a perceived lack of understanding regarding internet communication and cryptographically signed messages. It is argued that regulators misunderstand the unique properties of these mediums, resulting in a negative sentiment towards their treatment. However, proponents argue that existing laws, protections, and regulations can be applied to satisfy the requirements of both the online community and regulators, advocating for a positive approach without the need for special treatment.

There is also a negative sentiment towards compromising privacy due to technical limitations or engineering practicality. Privacy is considered a constitutional guarantee, and individuals are not willing to sacrifice their privacy due to these limitations. The importance of protecting privacy rights and implementing privacy-enhancing measures in technological advancements is emphasized.

Privacy issues related to blockchain are seen as similar to traditional internet privacy concerns, generating a neutral sentiment. The argument is that privacy compromises in blockchain operations, particularly decentralized autonomous organizations (DAOs), are not distinct from the compromises observed in regular surveillance practices. This suggests that similar privacy concerns apply to both traditional internet activities and blockchain technologies.

Rick Dudley, a business owner in the United States, supports the use of Tornado Cash to provide financial privacy to his employees who receive payments through blockchain foundations. This positive sentiment reflects the value he sees in granting financial privacy and the enhanced security it offers. This indicates that privacy-enhancing technologies like Tornado Cash are being recognized as beneficial in the context of blockchain finance.

Privacy pools are considered a technology that restores a basic level of privacy. These pools allow for transaction privacy that can be revealed upon request, and they can demonstrate the legitimacy of funds by ensuring they were never sourced from regulated or restricted entities. The positive sentiment towards privacy pools suggests they are valued as a tool for individuals to regain control over their privacy rights in the digital realm.

There is an argument for regulators needing to educate themselves and gain a better understanding of these technologies, affirming the importance of keeping pace with technological advancements to make informed decisions and regulations.

Regarding regulation, there is a negative sentiment towards creating numerous new laws. Advocates argue that existing laws and regulations can be effectively applied, eliminating the need for extensive legislation. This preference for using and adapting current legal frameworks aims to avoid burdening the industry with unnecessary regulatory complexities.

In summary, regulators face criticism for their perceived lack of understanding of internet communication and cryptographically signed messages. However, proponents support the application of existing laws and regulations to meet the needs of both the online community and regulators. Privacy is considered a fundamental right, and compromising it due to technical limitations is met with a negative sentiment. Blockchain privacy issues are seen as similar to traditional internet privacy concerns, and privacy-enhancing technologies are recognized and valued. Regulators are encouraged to educate themselves, and a preference for using existing laws over creating excessive new regulations is evident.

Fatemeh Fannizadeh

The discussion surrounding the model law for Decentralised Autonomous Organisations (DAOs) covered several important aspects, including legal personality, limited liability, and internal governance. The model law aims to address all the necessary considerations in corporate formations, such as rights, obligations, and the entity’s purpose. It specifically emphasises that there is no implicit fiduciary duty for any one decision-maker. In addition, provisions were made to accommodate the unique nature of blockchain technology, including the possibility of forking.

Various jurisdictions have considered the model law for DAOs, including Australia, the UK, St. Helena, and New Hampshire. However, the state of Utah in the US is the only one that has adapted and implemented the model law thus far. Other jurisdictions, such as Vermont, Wyoming, and the Marshall Islands, have attempted to regulate DAOs through incorporation. Utah’s adaptation of the model law has drawn criticism, particularly regarding the requirement for DAOs to register within the jurisdiction and nominate a registered agent. Critics argue that this requirement deviates from the original model law and is an attempt to exert control over DAO entities.

The discussion also highlighted privacy as a constitutional right. It was emphasised that privacy is not against the state, but rather, it is recognised as a fundamental right in most places. The false dichotomy between protecting privacy and preventing terrorism financing and money laundering was also disputed. It was argued that individuals should not be forced to choose between their privacy and preventing illicit activities, as both can be upheld simultaneously.

When it comes to regulating the DAO Model Law, caution was advised against rushing the process. The technology underlying DAOs is still in its organic growth phase, and it was suggested that hasty regulation could hinder its development. Instead, the establishment of a regulatory sandbox was proposed as a way to allow the technology to mature more effectively. A regulatory sandbox would provide a controlled environment for experimentation and refinement.

The future of the internet was also discussed, with a prediction that it would become more decentralised in the next 20 years. This implies a shift towards a less centralised structure, where power and control are distributed among various entities and individuals. Such a transformation could have implications for internet governance, privacy, and overall functionality.

In conclusion, the discussion on the model law for DAOs covered various important aspects, including legal personality, limited liability, and internal governance. While Utah’s adaptation of the model law has faced criticism for imposing additional requirements on DAOs, other jurisdictions have pursued different approaches, such as incorporation. Privacy was recognised as a constitutional right that should not be compromised. Caution was urged in the regulation of the DAO Model Law, with the suggestion of implementing a regulatory sandbox. The future of the internet was predicted to involve a more decentralised structure, potentially impacting governance and functionality.

Jarrell James:
and like presentations, but we want to also be able to see our notes at the same time so that we don’t just ramble on and waste your guys’ day. So just bear with us real quick, but I can go ahead and introduce the general theme and concept and also the panelists involved. Hello, hi, welcome to the last day of the IGF. We all made it, round of applause for yourselves. I think we’re going to be very brief on technical terms here, but we’re just going to be introducing something called the Dow Model Law and a group coalition called Koala. And Koala is a multidisciplinary research and collaboration firm. It gathers lawyers, academics, computer scientists, and entrepreneurs with a collaborative mindset. We’ll be researching together the challenges and opportunities of decentralized technologies and their impact on specifically law and society and creating actionable steps forward for legal recognition of entities that are known as DOWs, which are called Decentralized Autonomous Organizations. So a little bit about the Koala panelists. I’m not sure I can see everyone that’s online, but assuming that we’re all here. Okay, so online somewhere is my good friend, Rick Dudley, and he’s in New York City, and he is a, honestly, Rick’s pretty freaking cool. He’s got like 20 years of just building the craziest intercommunication technologies and helping design standards across a number of different technical fields. And he is a founder of a project called Laconic and Vulcanize. And he’s just, you know, he’s a really real guy, so it’s gonna be a little bit blunt stuff from him. I’m excited for it. Over there, doing a little coordination, we have Fatemeh Panazera, and she is a badass lawyer and has worked on a number of different decentralized technologies as a general counsel, leading counsel, and is also one of the authors of the paper that we’re gonna be discussing today, the Model Law. This right here, this person is Silke. They’re going to be facilitating the presentation, walking you guys through, as we can, the Dow Model Law, and we’ve scaled it down and made it very applicable to just specifically what we wanna focus on with legality in society. And I believe we have, oh, hey, everybody, how’s it going? Then we have Morshed, and Morshed, actually, now that you’re up here, do you wanna introduce yourselves, Rick and Morshed? I’ll start with you, Morshed.

Morshed Mannan:
Hello, everyone. My name is Morshed, I’m a lawyer and a legal academic. I’m currently based at the European University Institute in Florence, working on the BlockchainGov project. I’m also a member of Koala and had the great pleasure of co-authoring the Dow Model Law with Silke, Fatemeh, Rick, and I think I see Greg as well. Greg, it’s a pleasure to be able to be here today,

Jarrell James:
even if it’s only online. Well, the point of this conference is that the online participation is just as important as in-person participation. So, Rick, do you wanna give a quick and better update about who you are and what you believe and how your life is going, or do you want me to continue to do that? Unmute, unmute. Unmute, Rick. Hi, yeah, I’m Rick. I think the very good intro, thank you. I’ll just sort of add, primarily a mechanism designer

Rick Dudley:
in the blockchain space, and that’s sort of how I ended up working with Koala on the Dow Model Law. And I work with a lot of Dows as well, just as part of my professional capacities. Awesome, and myself, I am Jarell James. I’ll be moderating this panel and hopefully not messing it up.

Jarrell James:
So, I come from a space of decentralized technologies as well, also have a history in computational chemistry. And I am co-founder of a project called Internet Alliance with Fatemeh Fonazadeh over there. And we’re focused on internet resiliency, infrastructure, and different strategies with which to achieve that for various populations, depending on what their needs may be. So, without further ado, which I don’t actually know what that sentence means, let’s just start off with a quick question. Does anyone, I think we already asked, has anyone heard of Dow Model Law? And the answer is no, right? There’s been words, for instance, perhaps the service was paying. I’ve seen some nods. There’s some nods, okay. So, that’s a little bit where we come from in Europe. I think maybe we could just highlight some main points on this. And the Dow Model Law is a lot of work towards, I think, something that’s been frustrating on a good portion of society inside of the hyper-technical space that’s trying to push forward decentralized technologies. You know very well that Europe is one of the. There is overwhelmingly a wall that people run into, which is being recognized as legal entities or finding some kind of meaningful legal pathway to interact with, whether it be municipal authorities, corporations, and international coalitions. So, this is maybe a good way to go into why it took three years and a little bit about what it is from Silke.

Silke Noa Elrifai:
Hi guys. I think most of you have, if you are here in this presentation, you have heard about Dows. They represent a new form of coordination and collaboration that has not consisted until very recently. And it’s an opportunity, especially for people, for global organizations, and many of you are from global organizations, to actually look into this coordination form that goes beyond companies. It’s an opportunity for large-scale coordination and it’s desperately needed, as you can see from the recent geopolitical changes for this increasingly multipolar world. They do face, as Gerald just said, they do face significant legal uncertainties that can be very detrimental to their development. And Rick, if you could just move to the next slide. So, why do we need the model law? It’s, there’s a need for these organizations to have a legal personality and capacity. Just click it through, if you could. So that Dows can actually interact and interface with the off-chain world. Companies do have limited liability and that’s why they are so successful. This is not the case for Dows and to, however they need this to protect the contributors, and you might have seen, there has been quite a few, there has been a lot, not a lot, but some jurisprudence on the topic. And this has been going on for the last three years and we need to continue to look into this. There is a need for legal personality so that Dows actually have standing, for example, to sign contracts or to sue in court. There is also a need to resolve taxation issues because at this moment in time, a lot of those Dows, they’re not registered anywhere. That means they do not pay taxes anywhere. That needs to find a solution. And then there’s also overall generally a need for a legal certainty and predictability. Again, to interface with the off-chain world. People have asked us, and several jurisdictions around the world, what they’ve done, they have actually trying to make their jurisdiction more hospitable to Dows. And they, or people ask us, why do we not just incorporate in a company, in LLC, just a corporation? Shouldn’t that be enough? Why are we actually pushing for something new? And the reason for that is, and Rick, if you just move one further. Next slide, please. We can summarize that, and I’ve just said that already. It’s basically Dows are transnational, pseudo-anonymous, autonomous, and actually they are incorporated and they are incorporated on a blockchain, which is decentralized, secure, and tamper-resistant. And the question then become, why do they need to be incorporated in a company’s register? To address all these points, what we did is, over the last three years, we worked on this model law. And the model law has, we should start with that. Actually, we want to go into problems we have faced since then. But the model law is premised on two concepts, or two principles. The first one is functional equivalence. And Rick, if you move over to the next slide, would be great. It’s functional equivalence and regulatory equivalence. These get mixed up quite a lot. They’re two different concepts, but very similar. So the first one, functional equivalence, is between the tools and the tech, to comply with specific legal rules. So, what are the tools that are available to actually fulfill whatever the tech says? So, for example, you have wet signatures and you have e-signatures. And then, the even more important concept is regulatory equivalence, which is between the means used to achieve a regulatory objective. So, as an example, the deployment of a smart contract on the blockchain with all the relevant data about the DAO might not be functionally equivalent. In fact, it is not functionally equivalent to registration into a corporate register, but its regulatory policy objectives of publicity and certainty are fully achieved, or we at least think that it fully achieved this goal. And based on those principles, we came up with this model law, and Fatemeh is going to continue on this. Hello, yes.

Jarrell James:
Rick, if you can follow up on the next slide, I’m still gonna present on this slideshow. So, what you’re gonna see soon on the slide is, thank you.

Fatemeh Fannizadeh:
So, this is the structure of the model law that we drafted, which is itself like a 50-page document with the commentary. And I’m not gonna really enter into the details of the various chapters, but you can see that it basically tackles all of the points that we traditionally pay attention to in corporate formation. So, it being rights and obligations and the purpose or activity of the entity, the governance requirements that would lead to fulfilling the minimum conditions to have legal personality and limited liability, some exceptions to that, as we also have in the corporate world, some other rules about internal governance. We highlighted the absence of implicit fiduciary duty for any one decision maker within that novel form of organization, because this is one of the big risks that people who are involved with DAOs are concerned about whether or not they will be considered as a fiduciary and then bear the responsibility for whatever the activity of that entity is. But if the DAO has been granted legal personality and limited liability, then there is this absence of fiduciary as well within the scope of that model law. And then we further went on to discuss particular provisions about the nature of the blockchain itself, which if you’re familiar with, like can be, for instance, forked. So, people can move away from a blockchain into another version of it and so on. So, these are very technical possibilities that exist in very different forms in the corporate world. So, we had to tackle these problematics there. And then we have some other provisions and briefly deal with tags, which is something that we couldn’t really satisfyingly cover within the DAO model law because it’s so jurisdiction specific. Rick, please, the next slide. And now, so we wrote this a few years ago, published it, and then what happened since? And usually, this guy moves around and he’s like lost and looks for an answer for where is the adoption. And so, the adoption has to be put in the global context of the fact that when we wrote that model law and published it, it was quite early, even in the technical space, for DAOs to mature and also for legal space, like the jurisdictions, to grasp this novel form of entity and understanding and decide how they want to regulate it if even they want to regulate it. And should they want to regulate it, then whether this should be through, for instance, implementing the model law or just finding other ways. And since the publication of the model law, we’ve seen many developments in various jurisdictions. So, the three first ones that are listed are Vermont, Wyoming, and Marshall Islands, have decided to tackle the question of their relationship or their jurisdiction’s relationship with this novel form of entities through a vision that is not the one of the model law but is very important to pay attention to. So, they, for instance, decided that this DAO, in order to interact with the legal system and other corporations and just the bureaucracy overall, of their jurisdictions, and then globally through their jurisdictions, then they have to, for instance, incorporate an entity there or somehow incorporate their DAO entity within that jurisdiction through some novel form they came up with. Then, this obviously has drawbacks. So, to understand the attempts here is that, I like to give this example that blockchain and DAOs, they speak their own language. It’s a novel form of association between individuals who decide that to pull together some form of treasury or asset and govern it in a global way that is novel in comparison to what we’ve been doing so far, that association is usually amongst people done within a geographical zone, so a country, a jurisdiction, and internet and our hyper-connectivity and whatever opportunities that the blockchain technology offers allows people to interconnect and join within a purpose in a more global scale. And this language is not actually spoken by the language of our legal system yet. So, for these two systems to interact, we need to somehow bridge this interaction and Vermont, Wyoming, and so on, try to do it through this incorporation method. But then, the model law has also been considered by other jurisdictions and implemented, adapted and implemented only in one so far. Here, you can see that Australia has analyzed it, the United Kingdom, it appeared in one of their works. St. Helena is considering it, New Hampshire as well, but the state of Utah in the United States decided to actually adapt. adopt and adapt the model law approach. But it did make some modification to that. And if Rick, you go to the next slide, please. So Utah, what they did is that they took the model law and tried to fit it in within their own jurisdiction and system that is currently existing. And for that, they had to make adaptations, of course. But one of the features of the model law that is very core to the whole exercise that Utah parted with is the one where the model law, we do not require registration of the DAO. So the sole fact that it exists and fulfills the conditions of the model law should suffice for it to be recognized and granted legal personality. While in the state of Utah, they said, yes, but it also need to register within our jurisdiction. Rick, please, the next slide. So here is just like a screenshot of the bill if any of you want to look further and read the bill. Next slide, please. And this is a screenshot of that registration provision where it says that it has to nominate one registered agent within the state of Utah. So I think that what they were attempting to is having a point of connection within the jurisdiction in order to speak to that DAO entity. So I can break here if any of you have questions so far

Jarrell James:
or otherwise we move to. Hello? Yeah, I think we should stop here for a second and maybe help everyone, what did we all just hear? What was this as a full review? So we are talking about decentralized autonomous organizations. These organizations can be collectives of people, but I think maybe more relevantly for the IGF, it could also be coalitions of companies or orgs that are all coming together under a shared mission and that shared mission would require them to have some kind of legal interaction with various bodies around the planet. And I think what you guys have just done really well is explain all of that, but also the issues with where this philosophy tends to run up against a wall and that is the oftentimes these jurisdictions. If anybody does have any thoughts, I would encourage you to start maybe thinking about your own governments and maybe your own jurisdictional issues that you’ve considered. And yeah, get your questions ready for us for later. But yeah, I think if we wanna move into really explaining the first challenge, might be good. And we can, like the first challenge of the Dow Model Law going forward. And from there, I think we can also take into account audience participation of maybe other challenges that you may think could be propping up in your own places or could pop up in examples you’ve seen in the past. So I’ll hand it over.

Silke Noa Elrifai:
I think one important factor, we have prepared two challenges. The reason we come with this challenge here is because here at IGF, you have a lot of government officials and governments that consider Dow legislation. What we face with Utah is basically, they adopted the Model Law wholesale with a few exceptions but for this registration requirement. But the core of the Model Law is actually not too hard to force a Dow to have to register because they are global entities. We’ve ourselves wondered why this is the case and what we can do to improve the Model Law because we’re working on a version two. The registration requirement, basically what we said, we had earlier the equivalence, the functional equivalence and the regulatory equivalence principles. We feel that the publication on the blockchain, the registration on the blockchain, the publication requirements and all the requirements we put into the Model Law in relation to that is regulatorily equivalent to registration in a jurisdiction but it seems that this is not the case for Utah and also other jurisdictions we have talked to.

Jarrell James:
So actually, I wanna just do a little bit of audience participation on this. It’s like, what would somebody think is one of the biggest hesitations of why they would want to interact with a single person or have someone, a single entity, a single person registered in their jurisdictions? Just raise your hand and answer that question if you want but we have, I think a lot of people tend to tell us it’s because of liability, it’s because of liability, it’s because of liability and I don’t believe that that is exactly where it actually comes from from these governing bodies. That’s not what their concern is.

Silke Noa Elrifai:
I mean, one other issue that usually is the elephant, the white elephant in the room is the taxation like without registration or jurisdictions that currently consider making a hospitable environment for DAOs, this is, I wonder, this is basically because they wanna have tax money, they wanna have a benefit from it and they feel that there might not be a benefit if they do not require the registered agents or general other formation requirement in their own jurisdiction. I’m very much interested to hear your opinion on that because obviously within the model also, this could be dealt with new, different taxation rule on DAOs.

Jarrell James:
Yeah, and I just wanna give quick our participants online a chance to tune in here. Murshad is very well versed on the equivalence issue and I would love to just give you the floor, Murshad and just discuss some of your own insights around these tensions. Thank you. I won’t take up too much time, especially given the very comprehensive and thorough presentation that’s been given as well as the interventions that have already been made.

Morshed Mannan:
But I think in addition to taxation, one of the issues that we found as a challenge when it comes to establishing regulatory equivalence has been what are considered to be like incorporation fees which is, I guess, a type of tax or is a type of levy that a state expects an entity to pay when they’re filing. And we anticipated that the revenue implications would be something that they would take into account but in the transposition process, this was quite a eye-opening aspect of it that this came up again and again as a discussion point. So I think going forward, when we look at different jurisdictions to work with with respect to the model law, the issue of how like regulatory equivalence cannot just take into account trying to meet a policy objective, but has to hands-on take into account these sorts of financial considerations as well and whether some other way of trying to meet these considerations, whether that is having a pool of assets that is kept to pay for these sorts of fees, it could be something that’s done individually, it could be done by unregistered DAOs as a group. There are many creative approaches that can be taken to do this, but basically that just trying to satisfy a policy objective wouldn’t be sufficient. The other point that I want to add is that in addition to this issue of registration, registered agents and so on, there’s also been a discussion about the role of accreditation. So who is going to actually verify that the different points that are mentioned for formation in the Dow Model Law, who gets to actually accredit that this is happening, who gets to audit it and so on? And we found that different jurisdictions have different views about who this should be. Some have said that, okay, a private accreditation body that sort of does this assessment is fine, while others have said, no, we would want to have some entity in our state, something that the state authorities trust to be able to do this so that they know that these formation requirements have been met. And again, so this will be an issue to consider when we try to establish regulatory equivalence in other contexts. And yeah, I’ll hand it over to Rick or anyone else who would like to add to this. Or back to you.

Jarrell James:
I think that was a really solid just overview. And I want to keep us a little bit forward moving forward on this, because I think this regulatory question is just going to come up again in this next little bit. Because I think what we’re not discussing is, yes, while we’re not fulfilling maybe the philosophical background and ideologies of these municipal authorities or these governing bodies, there is also a moment where they’re not fulfilling the actual decentralized ideology and the purpose of having these decentralized organizations be able to collaborate in both a mathematically ledgered way on a blockchain, and also in a way that allows for a number of different stakeholders to combine themselves under one coalition and demand recognition on that basis. And why I wanted to bring up the conflicting philosophies then around this for DAOs is I think a really important part of DAOs is the ideology around that is that people want to be able to make movements in a private and secure environment. And privacy, by its nature, I think we’re learning, is kind of anti-state in some ways. I think that there’s a desire to kind of eradicate true privacy on the digital sphere. And DAOs represent a collective movement that is also trying to maintain the privacy of some of its members and not put them in positions of compromise. So I wanted to hand it over to you to start off on the challenge two and discuss where privacy fits into all of this. Fatemeh. Hello, yes, now it works. Thank you for this.

Fatemeh Fannizadeh:
I was gonna comment actually on the previous challenge just to cite some case laws, but your prompt actually requires a response because you said that privacy is anti-state. And I think this is fundamentally not the case. Actually, privacy and our right to privacy is a constitutional right in most of the places and is actually why it’s very aligned with state mission. So privacy is not anti-state, but this is part of the current narrative that we are hearing more and more that privacy threatens some of our other rights. So privacy needs to be compromised with in order to protect and sustain anti-money laundering rules, for instance. Or privacy should suffer, encryption should suffer in the context of messaging apps, for instance, to protect the rights of other populations against some form of harmful content that can go through these apps and so on. So privacy as a right, I think, is not under question because it cannot be, I think, legitimately questioned. But here there is the question of whether privacy primes over these other rights. I even wonder whether this is an actual legitimate question in itself. Is this a dichotomy between should we protect privacy or should we protect against terrorism financing and money laundering? I think that this is a false dichotomy that forces us to choose one over the other while I believe that we can protect both and we should aim to protect both and fulfill all of our rights without harming one for a certain narrative.

Jarrell James:
Yes, Silke, I wanna hear your response. And then Rick online, who is a deep professional in the privacy design space, I’d love to hear just a couple minutes of thoughts following Silke.

Silke Noa Elrifai:
Just give him a one, two. One thing I wanted to add is obviously right now because DAOs, and we haven’t mentioned this, DAOs are premised on transparency, meaning that everything is transparent right now. And it’s actually, I’m not sure DAOs are actually advancing privacy at all. It’s the opposite. They are not advancing privacy. They have been undermining it and we are trying to get it back. Also, the model as it stands right now actually is based, premised on transparency and how transparent everything is. And that leads to regulatory and functional equivalence. And now we’ve seen several bad results out of that. One is, for example, that DAO workers, their right to have privacy of payment is being undermined because they’re getting paid by the DAO. Everyone can see they are paid like X amount, whereas anyone who works for a company just has this privacy. No one necessarily sees a person’s bank account. So what we’re trying to do is trying to get privacy back into the model law. And that is a challenge because DAOs are usually associated with, I mean, they’re squarely in the cryptocurrency space and there are KYC rules and anti-money laundering rules. And regulators would love DAOs at least to stay transparent while we’re trying to get this back to a certain extent.

Jarrell James:
Yeah, Rick, I think you’re online. I actually really love a bit you were just saying about how DAOs are more transparent than the salaries of CEOs and the salaries of all these different corporate entities and their officers. And that transparency does seem to be lost on regulatory authorities. When you tell them that there’s a ledger and there’s this published transparency, I don’t know that there’s a lot of understanding around that. So yeah, just go respond. And then, yeah, Rick, I’d love to hear your thoughts on the design for these sorts of pieces. Yeah, I think there’s a lot of issues around privacy.

Rick Dudley:
I think there is this sort of fundamental misunderstanding when talking, in my experience, in talking to regulators or sort of hearing the arguments of regulators secondhand, maybe more precisely. They seem to believe that the medium somehow is special and has these special properties that require a special treatment. And I think that that’s very misguided. I think that the medium being internet communication, frankly, and cryptographically signed messages, not even encrypted messages, really shouldn’t, should be a simple enough mechanism that we should be able to educate regulators on how existing laws and existing protections and existing regulations can be applied in a way that both satisfies the requirements of the existing online community, as well as the regulators. And so for me, a lot of these privacy conversations are, to Silke’s point, why are we giving up privacy? There’s a technical limitation. There’s sort of a engineering practicality that’s causing that at the moment, but we shouldn’t expect that. that to persist in perpetuity. And we should be able to, much like Fatima was saying, we should be able to have the privacy that we’re constitutionally guaranteed. And I think that that’s actually maybe the bigger issue is that there is an internal struggle within any government that I’m aware of where they want to know what people are doing in spite of the fact that there is a constitution or some other legal constraint on their ability to do that inspection. And I feel like this is just sort of classic, traditional internet privacy issues. It’s not really distinct. The dial privacy issues aren’t really that distinct from normal surveillance compromises, I guess you could call them, because surveillance still occurs. We can’t really avoid it. I think just touching on that,

Jarrell James:
you were saying that we shouldn’t give this up and there are ways to reconcile this. I fully agree, I think we all do. And I just would like to clarify that I think what is striking to me is that as things move towards a digital space, now we are starting to see this idea or this perpetuation that privacy is anti-state. And that’s kind of where I’m coming from on that. I’d like to just quickly discuss any ideas on how we would reconcile these kinds of differences and what’s going on in model law number two, or version two, and what maybe approaches are being taken around reconciling these mildly ideological differences. That’s an open question to any of the panelists, if you’d like it, but just take it. Yeah. Hello? Yeah.

Silke Noa Elrifai:
The African attempts to recreate the privacy that a normal bank account or like the payment into a bank account by a company would give you. I’m probably not the right person because that was the technical team was developed earlier. There’s actually a blog post about that. But it was just about that one little point. How can the workers get paid without everyone know how much money they get and on what regular basis they get the funds? It was, and you might have seen this if you’re in the space in relation to privacy pools. What it does is you send the funds into, am I the right person to talk about this? Maybe Rick wants to talk about that.

Jarrell James:
Yeah, Rick can talk about the privacy pools. Yeah, I’m capable of talking a little bit about privacy pools. I mean, I understand the underlying technology well enough.

Rick Dudley:
So yeah, I mean, there’s, so in fact, I should probably should mention this earlier. So I run a company. It’s a registered company in the United States. I pay my taxes. We get paid on chain by various blockchain foundations. I put those payments through Tornado Cash, specifically for this reason to add some financial privacy to my employees, frankly, who get paid this way. I thought it was a bit bizarre and invasive that anyone in the world could see what they’re being paid. There’s also a security issue that I’m always sensitive to, physical security issue of people knowing how much you’re getting paid. And so I use Tornado Cash and I’m happy to, I still have all of my notes and what have you. I can prove to any regulator that I was not a terrorist. I paid myself and what have you. But all of the sort of rigmarole and controversy around that, even prior to some of these other claims about funding terrorism that have also come up, again, it’s just a lot of confusion. It’s a lot of regulators sort of applying, trying to hammer in a screw. I think a lot of these problems, so privacy pools are just a technology that is really just trying to get you back to the basic level of privacy that you would have had otherwise. So basically being able to say, I sent this transaction in private to someone else, and now some regulator asks me or somehow requires that only certain types of transactions actually make it onto the payment rail, for example, like the Fiat payment rail. Privacy pools are a technology that allows you to have privacy when you’re transacting, but then reveal it upon request and demonstrate that your funds never were tainted by funds that are otherwise restricted or regulated.

Jarrell James:
All right, thank you. I think in the last few minutes, I wanna ask the panel, and I think it’ll be more fun if we do a little bit of a hypothetical situation. So let’s each person, let’s imagine you’re talking to the lead regulator of, let’s say, a major world power. What is something that you would want to get across to them, and what is the call to action to the legal practitioners of that government around this Dow Model Law that you would just, if you had five minutes in an elevator?

Fatemeh Fannizadeh:
Thanks, I can go first, maybe. I think that it’s not about lead power of the world. Actually, this is a global technology that knows no borders, and it should not be primarily regulated by one so-called lead power. I think that what I would wanna tell all of the regulators and practitioners who are interested in this space is not to rush into regulating or trying to capture through or shape this technology to regulating right now, because the technology itself is still growing organically, and we need to give it space to grow. And I believe that all of the regulation that already exists, whether it is anti-fraud regulation or securities regulation and so on, do grasp some of the activities that may be problematic within the technology, and we do not need new form of regulation right now. What we need is a sandbox. We need to give the possibility for this technology to mature. And what we’ve heard often during the past days here is how will the internet look like in 20 years? And I think that the internet would definitely look different in 20 years, and it would probably, and I think I’ve heard that also often, which was positively surprising, that it will be probably decentralized or have more decentralized components. And for that to materialize in a positive way, I think that we need to care for less capture right now and more sandboxing in order for this regulation to deliver on its promise.

Jarrell James:
Rick and Armashad, just a couple of closing thoughts. Let’s try and keep it to two minutes. Yeah, so just briefly, just to sort of mirror that previous comment, I strongly believe that most of what we’re doing in this space with DAOs fits under existing regulation.

Rick Dudley:
The vast, vast, vast majority, there might be one or two exceptions that I can’t even really think of right now. I feel, frankly, as a taxpayer, I feel it’s the responsibility of the regulators to educate themselves and understand how these technologies work so that they can then apply the law judiciously to new technology, and I’m happy to help them with that. There’s plenty of people who are interested in helping and supporting that, but I don’t think that we need to create a lot of excessive new laws. I think it causes more problems than it fixes. Yeah, that’s basically it.

Morshed Mannan:
Marshad, let’s give you an opportunity here at two minutes. I just wanted to add that we’re starting to see case law emerging, as has been alluded to, that starts looking at DAOs, and in some cases, this isn’t, is basically trying to achieve regulation by enforcement of certain existing laws, and as we started to see, in some cases, this can lead to all manner of unintended consequences, especially if this, let’s say, gets appealed to an appellate court where there is a decision that’s made that creates precedent, and I think issues that we raised in the model law, ranging from whether there should be implicit fiduciary duties or questions of tort, all the way to issues of how to deal with the limited liability or joint and several liability, the risk of this, has to be something that we should also try to proactively shape in the types of regulatory sandboxes that Fatemeh mentioned, hopefully with the idea that judges will eventually also come on board to start interpreting the law in a way that doesn’t end up constraining this space and creating new sorts of harms, because while we wait, or to wait and see, this risk might also emerge.

Silke Noa Elrifai:
My last comment would be to state that even if regulators or jurisdictions do not wanna implement the model law, because of course there are a lot of issues with it too, at least get rid of the default characterization of DAOs as general partnership or unincorporated associations that gives joint and several liabilities to any of the contributors, and this is one of the things we have seen recently which had a very chilling effect, chilling, not chilling, chilling, cold-ringing effect on DAO contributions and how, and the developing of code for DAOs. We’ve seen this in, especially in the UK case in the US recently, this really needs to go away. So even if you think the model law is nothing for you, you need to address this in your jurisdiction, because if you don’t, you’re not gonna have much development in the area anymore.

Jarrell James:
Yeah, I completely echo those sentiments. Code by its own self is not a crime. And I wanna just bring this all together, because I know that legal frameworks and regulation can be very dry in understanding the future and, okay, well, how does this actually apply to the future, and there’s a lot of coordination systems that have existed before DAOs, and this is just another innovation in the concept of coordination systems. And I think what the model law has done and Koala is trying to do is push forward the field of innovative solutions around coordination, and while maintaining a lot of new and exciting technologies such as blockchain, such as decentralized infrastructure and organizations. So for relativity towards this event, there’s a lot of civil societies here, there’s a lot of people that could be coming together and making their own coalitions, and for those online that are watching, I’m sure we’ve all seen a lot of frustration inside of making movements on the planet and trying to make changes inside of different jurisdictions. So I’m really excited to see Dow Model Law version two, and yeah, we’ll be around, and feel free to discuss your governments for us, but you know, send them our way.