Where Do You Go to Sue a DAO?

• Pages: 2-3
• Date: 01 April 2023
• Author: John M. McNichols
• Subject Matter: Civil Law

By John M. McNichols, L itigation News Associat e Editor

Where Do You Go to Sue a DAO?

other to underta ke veriable and unera sable transactions

over the internet wit h no physical record whatso ever. The

genius of the blockchai n lies in its “distributed” nature, mean-

ing that no individua l user of the software has the abilit y to

undo or alter the “blocks,” i.e., the t imestamped data entries

that serve to record ind ividual transactions. Althou gh the

blockchain came to f ame for its role in cryptocurrenc y, it s abil-

ity to provide a decentral ized and transparent record of events

has potential applic ation to nearly any form of multiparty

transaction or decision.

The DAO represents the application of the blo ckchain in

the eld of business orga nization. Unlike corporations a nd

limited liabi lity companies ( LLCs), DAOs do not have ofcers

or even any separate corporat e existence. They instead merely

consist of persons who, by pa rticipating in a common block-

chain, have agre ed to govern their ventu re through software

protocols. Decisions i n a DAO are made collectively th rough

the votes of the users , who are known as “tokenholders.”

But unlike in a t raditional partnership where votes must b e

counted and then followed by ac tions taken in furtheranc e of

the group decision, t he decision-and-execution proces s in a

DAO occurs automatically, in a sing le step, simply as a func-

tion of the blockchain’s softwa re.

The self-exec uting character of DAO operations is enabled

by the DAO’s “treasury,” a collection of digital ass ets

maintaine d on its blockchain for di sposition according to

the DAO’s software protocol. The tre asury’s assets are all

non-physical, consist ing of cryptocurrency and ot her digi-

tal tokens. But notw ithstanding the rari ed nature of such

tokens, assets u nder the control of DAOs are presently es ti-

mated to exceed $9 billion i n value, with the largest and most

prominent DAOs controlling as sets worth more th an $100

million each.

© Getty Image s

In September 2022, the Commodity Futures Trading

Commission (CFTC) sued something called “Ooki DAO,”

alleging that it had set up a trading platform for crypto-

currency futures without federal registration. As the basis

of its claim, the CFTC cited Ooki’s software, the virtual

trading oor where customers could speculate on the digital

coins of their choice. While the CFTC’s claim of jurisdiction

over a cryptocurrency trading application was not new, its

choice of defendant was: The “DAO” in “Ooki DAO” stands

for “Decentralized Autonomous Organization,” a new type

of blockchain-based business with no organizational charter

beyond its operational software. As a testament to the novelty

of its action, the commission sought to effect service of process,

not through a registered agent, but simply by posting a copy of

the summons to Ooki’s online Chatbox.

While the district court held the commission’s method of

service effective—particularly when coupled with personal ser-

vice on two known participants in the DAO—numerous ques-

tions remain concerning the propriety of suing, or otherwise

doing business with, a DAO. On one hand, skeptics argue that

people having been doing business without a corporate form

for a long time and that no special privileges need attach sim-

ply because the participants have chosen to do business on a

blockchain. Others, however, see DAOs as the perfect vehicle to

cultivate next-generation innovation and, to that end, encour-

age the recognition of a new form of entity. Thus far, only

Tennessee, Vermont, and Wyoming have taken steps in that

direction, but if current trends continue, others are nearly cer-

tain to follow.

What Is a DAO?

The blockchain is t he technology that enables cryptoc ur-

rency. A form of software, it al lows users unk nown to each

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