A recent report from the UK Law Commission, published on July 11, suggests that decentralized autonomous organizations (DAOs) should be regulated under existing financial and tax frameworks. The commission emphasized there is no need for a separate regulatory entity but advised continuous review of the situation.
The report highlighted the complexity of DAOs, noting that their legal treatment depends on their type. For example, DAOs issuing governance tokens could fall under the Financial Services and Markets Act 2000 and be subject to UK promotion rules. Others may be considered unincorporated associations, where members are individually liable for actions.
Historically, DAOs have faced legal scrutiny, such as the bZx protocol lawsuit where the DAO was categorized as an unincorporated association by the CFTC. States like Wyoming and the Republic of the Marshall Islands have recognized DAOs as legal entities, showcasing diverse regulatory approaches.
The commission concluded that, at this stage, a unified legal framework for DAOs in England and Wales is unnecessary. However, it acknowledged that ‘pure’ DAOs using smart contracts could still face legal actions.
This report underscores the need for adaptable regulation to keep pace with evolving DAO structures, ensuring both innovation and legal accountability.
