In the same year, another DAO captured headlines when it raised $47 million in cryptocurrency to bid on a rare copy of the U.S. Constitution at Sotheby’s auction house. ConstitutionDAO, as it was known, brought together thousands of enthusiasts who pooled their resources to democratize ownership of this historic document. Though they ultimately lost to a higher bid, the event highlighted the mobilizing power of DAOs and their potential to drive collective action.
Struck your fancy? Well, welcome to the universe of DAOs.
What is a DAO?
A Decentralized Autonomous Organization, or DAO (pronounced “Dow”), is a blockchain-based entity with some similarities to a traditional company but with unique features that operate through smart contracts. These smart contracts are self-executing agreements with the terms directly written into code, ensuring transparency and security. DAOs operate on a democratic model, where members collectively make decisions through voting, instead of a single person or a small group controlling the system. This setup aims to create a more open and fair organization.
DAOs are characterized by their decentralized governance structure, where decision-making is distributed among token holders rather than being concentrated in a central authority.
While DAOs are still in their early stages, with fewer than 5,000 existing globally and less than 100 managing over $1 million, they are gaining attention for their innovative activities. From making investments to forming new types of communities, acquiring precious items, and engaging in philanthropy, DAOs are exploring exciting new possibilities.
History of DAOs
The journey of DAOs began with the first-ever Decentralized Autonomous Organization, uninventively enough, called “The DAO” in 2016, a groundbreaking but controversial project that sought to establish a new paradigm in organizational governance. Built on the Ethereum blockchain, the DAO quickly amassed well over $100 million worth of Ether, captivating the tech and finance communities with its innovative approach. However, a critical vulnerability in its code was exploited, leading to a significant hack and the loss of millions of dollars. This incident prompted a contentious hard fork of the Ethereum blockchain, resulting in two separate chains: Ethereum (ETH) and Ethereum Classic (ETC). Despite this setback, the concept of DAOs persisted and evolved.
Another notable example is MakerDAO, which manages the DAI stablecoin. DAI is pegged to the US dollar and is used widely in the decentralized finance (DeFi) ecosystem. MakerDAO operates through a system of smart contracts that ensure the stablecoin maintains its value, demonstrating how DAOs can effectively manage complex financial instruments without centralized control.
Current Scenario of DAOs in India
India’s tech ecosystem is rapidly evolving, with a keen interest in blockchain technologies, including DAOs. However, the regulatory landscape remains uncertain. The Indian government has expressed both interest in and caution towards blockchain innovations, primarily focusing on cryptocurrencies. As of now, there are no specific regulations addressing DAOs, leaving them in a legally grey area. This lack of clear legal recognition presents challenges for DAOs operating in India, particularly in terms of legal identity, accountability, and asset ownership, but also leaves room for liberal interpretations and opportunities.
Can DAOs own assets in India?
In India, as per the status quo, DAOs face significant hurdles in directly owning any assets, let alone IP. Traditional asset ownership requires a legally recognized entity, such as a company or a trust, which does not align with the decentralized nature of DAOs. Nevertheless, DAOs can potentially circumvent this obstacle by establishing a legal entity to hold assets on their behalf. For instance, a DAO could set up a private limited company or a trust, which could then own assets. However, this intermediary approach compromises the core principle of decentralization that DAOs embody. Several DAOs have recently emerged in India, including DaoLens, Push Protocol, Wall.app, and Raptures. However, these organizations have not yet ventured into owning assets.
Can DAOs be the owners of IP rights, either as authors or inventors or through an assignment or license in India?
The situation for owning IP assets mirrors that of other assets. In India, trademarks under Section 18 of the Trademarks Act, 1999, patents under Section 6 of the Indian Patent Act, 1970, and copyrights under Section 17 of the Indian Copyright Act, 1957, must be registered in the name of a natural or a recognized legal person. Consequently, a DAO would need to use an intermediary entity to own IP assets, introducing complexities and potential conflicts with the DAO’s decentralized governance structure. While this workaround is feasible, it does not fully resolve the legal and operational challenges posed by the current regulatory framework.
Can DAOs enforce their IP rights, such as through an infringement action?
Only juridical or legal persons possess rights and corresponding duties, enabling them to sue and be sued. As DAOs are not yet recognized as juridical persons under Indian law, as stated earlier, they may bypass this limitation by establishing an entity that is legally recognized in India or waiting for courts to categorise them as one. Historically, India has granted the status of ‘legal person’ to entities beyond corporations and charitable trusts, including animals, rivers, and deities. Thus, the recognition of DAOs as legal persons is not an entirely farfetched concept. Once this recognition occurs, DAOs will be able to own and enforce their intellectual property rights.
Can DAOs own assets anywhere else in the world?
The legal recognition and status of DAOs vary significantly across jurisdictions. Some countries are beginning to recognize the unique nature of DAOs and are creating legal frameworks to accommodate them. For example, Wyoming in the United States has passed legislation that recognizes DAOs as a distinct form of limited liability company (LLC). This law allows DAOs to own property, enter into contracts, and enjoy legal personhood, providing a clearer path for asset ownership.
In November 2021, an unprecedented event unfolded in Wyoming: a DAO of about 6,000 individuals, bound together through online forums like Discord, acquired 40 acres of land using cryptocurrency. The DAO that purchased the land is devoid of conventional human oversight; decisions are binding and executed without the possibility of reversal by any individual. The lack of a traditional management structure and the automated execution of decisions reflect the essence of the new technology.
If a DAO can manage and own real estate or other tangible assets, it’s not far-fetched to envision it owning intellectual property as well. The principles that enable DAOs to acquire and manage physical assets can extend seamlessly to IP assets, where the decentralized governance model can oversee the creation, management, and commercialization of patents, trademarks, and copyrights.
Furthermore, in March 2024, Wyoming made significant strides in integrating DAOs into its legal framework by introducing a new classification for them as “decentralized unincorporated nonprofit associations” (DUNAs). This innovative legal status provides DAOs with legal existence, allowing them to contract with third parties, appear in court, and manage taxes, while also offering limited liability protection. This move enhances Wyoming’s reputation as a forward-thinking jurisdiction for blockchain entities and could set a precedent for how DAOs are legally recognized and supported, potentially paving the way for similar advancements in the management of intellectual property assets.
In jurisdictions like Wyoming, where DAOs are legally recognized, they can indeed own IP assets, inter alia. This includes the ability to register trademarks, patents, and copyrights in the name of the DAO, thus establishing a direct link between the decentralized organization and its IP. Such legal recognition empowers DAOs to fully leverage their innovations and creations while maintaining their structures.
Conclusion
The journey of DAOs from ambitious ideas to practical organizational models has been both thrilling and challenging. The concept of DAOs holds immense potential for democratizing decision-making and enhancing transparency across various sectors. However, their ability to own and manage assets, especially IP assets, is contingent upon evolving legal frameworks that recognize and accommodate their unique characteristics.
As policymakers worldwide grapple with the implications of decentralized technologies, it is crucial to develop regulations that bridge the gap between innovation and legality. Properly structured, these frameworks can enable DAOs to thrive, fully realizing their potential to revolutionize how we think about organizations and asset ownership. The future of DAOs, and their ability to own IP assets, will depend on creating an environment where decentralized entities are not only viable but also legally empowered to operate autonomously and effectively. Technology is ever-evolving, and its full potential is yet to be unleashed.
In order to stay afloat, India must proactively tweak its regulatory landscape to accommodate and support the rise of decentralized technologies. By crafting forward-thinking policies that embrace innovation while providing a steadfast legal framework, India can harness the transformative power of DAOs and ensure their successful integration into the economy. As DAOs continue to redefine organizational structures and asset management, the key to unlocking their full potential lies in creating an environment where these digital entities can operate freely and effectively, driving progress and setting new standards for the future.
The cases of ConstitutionDAO, MakerDAO, and FlamingoDAO illustrate the diverse applications and impact of DAOs, showing that while challenges remain, the potential benefits of decentralized, community-driven governance are immense. Whether in finance, digital art, or beyond, DAOs are poised to redefine ownership and collaboration in the digital age.