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Could Decentralised Autonomous Organisation’s help realise Australia’s economic potential?

11 February 2022 | Insight
Legal Briefings – By Susannah Wilkinson and Sean Tran

Last week Senator Andrew Bragg of the Select Committee on Australia as a Technology and Financial Centre, discussed the establishment of a new Decentralised Autonomous Organisation (DAO) company structure with industry leaders. It was determined that the introduction of legal personality for DAOs was vital in order for Australia to realise the economic potential of this new organisational structure.

Susannah Wilkinson, Herbert Smith Freehills Digital Law Lead – APAC and Chair of the Digital Commerce Committee, Business Law Section of the Law Council of Australia, was invited to participate in this roundtable. Below are the key takeaways from the event.

Key takeaways

  • Currently, the legal status of DAOs is uncertain in Australia. DAOs that operate for a profit-making purpose may be construed as a partnership under Australian law.
  • There appears to be significant appetite from the Government and industry for the introduction of a DAO company structure in order to grant DAOs separate legal personality and recognise them appropriately within Australia’s regulatory frameworks.
  • The introduction of a DAO company structure will provide greater certainty to the legal status of DAOs and give them the ability to conduct business operations with the benefit of limited liability, whilst retaining adequate flexibility to support their unique characteristics.
  • These reforms have the potential to set Australia up as an attractive jurisdiction to harness the booming digital asset economy. Those interested in establishing DAOs should follow the developing reform proposals of the Australian Government.

What is a DAO?

DAOs are organisations that have a shared mission and treasury, and are heavily or entirely reliant on digital methods of governance and communication. Unlike traditional organisations and companies, a DAO’s governance mechanisms are not enacted by human agents on behalf of shareholders, but through members engaging directly with computer-coded protocols. Decisions made by the DAO, such as changes to its governance rules or use of its treasury funds are decided based on the democratic votes of the DAOs’ members, who are people who have purchased the DAO’s governance tokens. 

DAOs are a versatile organisational structure that can be used for many purposes including investment, borrowing, asset purchases and philanthropic fundraising. A number of DAOs have produced successful crypto-based platforms, such as cryptocurrency exchange Uniswap which has a market capitalisation of more than AUD 10 billion.

Why does Australia need a DAO company structure?

Given the wide ranging potential applications and numerous benefits of DAO structures, it is safe to assume that DAOs are here to stay. However, the novel characteristics of DAOs are not specifically recognised within Australia’s regulatory framework. The current uncertainty regarding the legal characterisation of a DAO is a significant barrier to wider adoption. Although untested as yet under Australian law, DAOs with a profit-making purpose may be considered a partnership in which case DAO members would be jointly and severally liable for the DAOs actions. DAOs may also be characterised as an unincorporated joint venture, unincorporated association, or a cooperative. Each of these existing legal structures are ill-suited to the nature and characteristics of DAOs.

In our submission to the Senate Select Committee on Australia as a Technology and Financial Centre (‘the Senate Committee’), HSF recommended the introduction of a new type of legal entity in the Corporations Act – DOA Limited. This is required to address the need to have appropriate corporate oversight and guidance for a new business model manifesting in the digital economy, particularly in respect of digital asset transactions. One of the main benefits of this reform would be to grant DAOs separate legal personality and limit members’ liability. Legal recognition of DAOs will also provide these organisations with legal capacity to employ people, enter into contracts, hold property, and obtain licences and insurance with confidence. There are also broader considerations in relation to the role and treatment of digital assets in the economy that need to be considered holistically across our regulatory frameworks, including tax.

Government Response

The Senate Committee recommended that the Government establish a new DAO company structure. Following the Committee’s Final Report in October 2021, the Treasurer Josh Frydenberg announced that the Government would examine the potential of DAOs and how they can be incorporated into Australia’s legal and financial regulatory frameworks. Work is currently underway to prepare a draft proposal for what this legislative reform should be.

Key Contacts