2019] LAW AND THE BLOCKCHAIN 681
will pay nine ether Y if the Dow Jones Industrial Average reaches 30,000”
(ether being the unit of cryptocurrency on the Ethereum blockchain).5 These
smart contracts enabled the 2016 DAO to implement fairly sophisticated
governance and exit rules autonomously on the blockchain.
The 2016 DAO was an enormous success—raising $150 million worth of
ether in just a few months.6 It was also a tremendous failure: Because of a flaw
in its code, an unknown individual was able to siphon about $50 million into
a private account, before being foiled by a technological fix that unwound the
DAO and restored all DAO participants’ ether to its original holders.7
Although the 2016 DAO failed, entrepreneurs following its lead launched
235 initial coin offerings (“ICO”) in 2017, raising a total of $3.7 billion from
DAOs may represent a dead-end in the history of business
organizations—that remains to be seen.9 What matters for the purposes of this
Article is what the 2016 DAO can tell us about the nature of contract law and
business law, and the potential for the blockchain to upset fundamental
expectations about the role of law in both fields.
Academic literature teaches, quite correctly, that all contracts are
incomplete.10 For one thing, it would be inefficient for two parties to try to
anticipate each and every future contingency and hash out an appropriate
contractual response.11 But even if two parties were ambitious and patient
enough to attempt such a feat, it would prove impossible. Given the bounded
rationality of humans and the uncertainties of life, one simply cannot contract
for every future possibility.12
5. The astute reader may wonder how t he blockchain knows when the Dow Jones
Industrial Average reaches 30,000. This question of how the blockchain receives reliable input
from the outside world is a key problem blockchain businesses must address. Artem, How Do Oracle
Services Work Under the Hood?, STACK EXCHANGE: ETHEREUM, https://ethereum.stackexchange.com/
questions/11589/how-do-oracle-services-work-under-the-hood (last visited Oct. 31, 2018).
6. Madeira, supra note 4.
7. To be precise, the Ether eum blockchain forked, creating two parallel Ethereum
blockchains, Ethereum and Ethereum Classic. On the more popular (and valuable) Ethereum,
the code was rewritten as if the DAO had not launched. But in the alternate reality of Ethereum
Classic, the DAO continues to exist and the $50 million transfer of funds did, in fact, occur. What
Is Ethereum Classic? Ethereum vs Ethereum Classic, BLOCKGEEKS, https://blockgeeks.com/guides/
what-is-ethereum-classic (last visited Oct. 31, 2018).
8. Cryptocurrency ICO Stats 2017, COINSCHEDULE, https://www.coinschedule.com/
stats.html?year=2017 (last visited Oct. 31, 2018). Note, however, that not all ICOs are DAOs.
9. Although, more DAOs are organizing. See infra Section V.A.2.
10. Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of
Default Rules, 99 YALE L.J. 87, 92–93 (1989).
11. Robert E. Scott & George G. Triantis, Incomplete Contracts and the T heory of Contract Design,
56 CASE W. RES. L. REV. 187, 190 (2005) (“A contract is incomplete if it fails to provide for the
efficient set of obligations in each possible state of the world.”).
12. See Scott Baker & Kimberly D. Krawiec, Incomplete Contracts in A Complete Contract World,
33 FLA. ST. U. L. REV. 725, 725 (2006) (“Contracts are never fully complete, because some