A recent report from the United Kingdom’s Law Commission has determined that decentralized autonomous organizations (DAOs) should be regulated under existing financial and tax frameworks. Published on July 11, the paper indicated that there is no immediate need to create a separate entity for overseeing DAOs but advised authorities to keep the matter under review.

The paper noted the lack of a general consensus on what constitutes a DAO, emphasizing that the ecosystem often adjusts its operations based on local judicial requirements. The commission highlighted that various types of DAOs, such as pure DAOs, hybrid arrangements, and digital legal entities, add complexity to the regulatory landscape.

The applicable laws for a DAO depend on its type. For instance, certain DAOs could fall under the Financial Services and Markets Act 2000 if they engage in activities related to specified investments. This includes offering governance tokens that grant voting rights in exchange for investment in a DAO. If these tokens are advertised, they could be regulated under the UK’s promotion rules aimed at consumer protection.

Some DAOs may be treated as unincorporated associations, typically involving a group of individuals with a common purpose. Unlike corporations, unincorporated associations do not have a separate legal identity from their members. This means they cannot own property, enter contracts, or be sued in their own name; legal actions must target individual members or officers.

“We do not, at least at this relatively early stage in the development of DAOs, recommend the development of a bespoke legal framework for DAOs in England and Wales,” the paper noted.

The commission also acknowledged that a pure and completely decentralized DAO could still face civil and enforcement actions if smart contracts, which can constitute a legal contract, are used.

DAOs and their legal status have previously been scrutinized, such as in a class action lawsuit against the bZx protocol, which was hacked in 2021. The Commodity Futures Trading Commission (CFTC) categorized the bZx DAO as an unincorporated association. In February 2022, DAOs were recognized as legal entities by the parliament of the Republic of the Marshall Islands, and a similar path was followed by the state of Wyoming.

Furthermore, U.S. Senator Elizabeth Warren announced her intention to introduce the Digital Asset Anti-Money Laundering Act of 2022, aiming to extend anti-money laundering (AML) regulations to DAOs.

For more updates on the evolving landscape of cryptocurrency regulations and DAOs, explore more news on Global Crypto News.

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