Foundations of Decentralized Organizations

Decentralised Autonomous Organizations, or DAOs, combine distributed ledgers, smart contracts, and digital assets to create organisations that operate without traditional management hierarchies, boards, or officers. Token-holders vote on proposals, and smart contracts automatically execute decisions. The technology promises more direct and continuous participation in organisational governance than conventional corporate structures typically allow.

DAOs exist in an uncertain legal environment. Their creators often have limited understanding of how traditional firms operate, while experts in corporate law have rarely engaged with DAOs as a subject of serious inquiry. Our new edited volume seeks to bridge this gap by bringing together leading scholars from both blockchain law and corporate law to examine how these novel structures interact with established legal principles.

From Idealism to Pragmatism

DAOs were originally conceived as code-based structures operating entirely outside legal systems—potentially rendering corporate law redundant. The first significant implementation, known simply as ‘The DAO’, launched on the Ethereum blockchain in 2016 as a collective investment scheme. Its infamous hack, which put a substantial portion of all Ethereum tokens at risk, initially limited adoption of the concept.

Within a few years, however, more sophisticated DAOs began to emerge. Today, DAOs manage tens of billions of dollars in assets and oversee major blockchain applications. They facilitate financial services, enable musicians to earn directly from fans, arrange collective ownership of art, and coordinate social aims from climate action to education.

Critically, DAOs have largely moved beyond their idealistic origins. Decentralisation remains an aspiration, but most operating DAOs now incorporate centralised elements. The most prominent development is the integration of legal entities, such as Cayman foundations, Swiss associations, or bespoke forms created by US states, to enable interaction with the traditional economy and shield participants from personal liability. This pragmatic evolution, prompted partly by courts characterising some DAOs as partnerships with unlimited member liability, makes the intersection with corporate law all the more pressing.

Key Themes from the Volume

The book addresses several fundamental questions that DAOs raise for corporate law and governance.

Legal Form and Organisational Flexibility. Two chapters offer contrasting perspectives on whether DAOs require bespoke legal structures. Nina Raiser surveys new legal forms created by US states including Wyoming, Tennessee, and Vermont, arguing that these help prevent partnership characterisation while offering greater flexibility than general-purpose vehicles. Shawn Bayern counters that organisational law should remain technology-neutral and that existing forms such as the LLC are sufficiently adaptable.

Corporate Governance and Fiduciary Duties. Michael Schillig examines DAOs through a historical lens and recommends an incremental approach that gradually accommodates DAOs within existing legal frameworks to foster innovation while curbing abuse. Jill Fisch examines how DAOs challenge traditional governance conventions by enabling customised structures, broadening participation, and raising accountability questions. Morshed Mannan and Primavera de Filippi critique the UK Court of Appeal's decision in Tulip Trading Ltd v van der Laan, arguing that imposing fiduciary duties on blockchain network participants stifles innovation and threatens financial stability.

Theoretical Perspectives. Contributors employ diverse analytical frameworks. Daniela Gandorfer and Eva Micheler use the theory of the firm and Elinor Ostrom's institutional analysis to argue that DAOs are too diverse for generalisation, some are market-like, others firm-like, depending on their specific arrangements. Jason Potts, Aaron Lane, and Chris Berg apply New Institutional Economics to suggest that DAOs’ economic advantages derive from the adaptiveness of their governance rather than simply economising on transaction costs.

Practical Challenges. The volume addresses what happens when DAOs encounter the traditional legal system. Kara Bruce, Christopher Odinet, and Andrea Tosato examine financially distressed DAOs, noting that highly decentralised governance structures may struggle with the time-sensitive demands of bankruptcy proceedings. Florence Guillaume and Bianca Kremer tackle private international law and dispute resolution, respectively, showing how traditional connecting factors produce unpredictable results for inherently cross-border blockchain organisations.

Regulatory Implications. Nizan Geslevich Packin and Anat Alon-Beck analyse DAOs as collective investment vehicles, highlighting both opportunities for broader investor access and challenges around investor protection and securities regulation. Iris Chiu examines decentralised finance applications, where DAOs have experienced conflicts of interest, governance controversies, and disadvantages for non-technical users, problems familiar from traditional financial markets.

Looking Forward

The volume concludes with broader perspectives. Jason Allen and Peter Hunn suggest we should treat legal and technical properties as organisational building blocks, while Kelvin Low and Edmund Schuster offer a sceptical assessment, arguing that centralisation and opacity serve useful functions that DAOs’ transparency cannot replicate. Kevin Werbach explores the intersection of DAOs and artificial intelligence, suggesting both technologies push on traditional conceptions of the corporation by potentially replacing humans with machines.

One consistent observation emerges: DAOs are too diverse for general statements. Unlike traditional corporations, where jurisdictional and constitutional variations exist on a relatively modest scale, each DAO arrangement requires individual examination to determine applicable legal rules.

The blockchain field is characterised by boom-and-bust cycles and has experienced both excessive hype and serious fraud. Yet business activity and academic interest continue. By examining how traditional concepts from corporate law may apply to DAOs, we hope practitioners and policymakers will identify genuine gaps, avoid reinventing existing solutions, and determine where decentralised organisation offers comparative advantages.

Information about the edited volume can be accessed here.

Kevin Werbach is the Liem Sioe Liong/First Pacific Company Professor of Legal Studies & Business Ethics at Wharton School, University of Pennsylvania.

Eva Micheler is a Professor of Law at the London School of Economics Law School.

Bianca Kremer is a Senior Fellow at Wharton Blockchain and Digital Asset Project, University of Pennsylvania, Legal Counsel at MME, and Postdoctoral Researcher at the University of Lucerne.