The following are the outputs of the captioning taken during an IGF intervention. Although it is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors. It is posted as an aid, but should not be treated as an authoritative record.
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>> JARRELL JAMES: Bear with us with our difficulties but I can introduce the main theme, concept and panelists involved. Hello, hi! We made it. A round of applause for the last day of the IGF.
I think where we are going to be very brief on technical terms here, but we will be introducing something called the DAO Model Law and the group COALA.
A little about the DAO panelists, on the line is my good friend, Rick Dudley.
He is in New York City. Honestly, Rick is pretty freaking cool. He has 20 years of building the craziest intercommunication technologies and helping design standards across a number of different technical fields and he is the founder of a project calls Vulcanize.
And here we have and we have Silke Noa Elrifai here and I believe we have, Fatemeh Fannizadeh, as well as Morshed Mannan. I believe everybody has it going. Morshed Mannan actually, now that you are up here, do you want to introduce yourselves, Morshed? I will start with you, Morshed.
>> MORSHED MANNAN: Hello, everyone. I am Morshed Mannan, Postdoctoral Research Fellow at the Robert Schuman Centre for Advanced Studies. I am also a member of COALA and proud to be could authoring this model and Greg, I see you, as well. It is a pleasure to be able to be here today, even if it is only online.
>> Is point of the process is the online participation is as important as the in‑person participation. Rick, do you want to give a better update on who you are and how you believe your life is going, or do you want me to continue to do that? Would you like to unmute?
>> RICK DUDLEY: I am Rick. I think a very good intro, thank you. I would sort of add I am primarily a Mechanism designer in the Blockchain space and that is sort of how I ended up working with COALA own the DAO Model Law, and I work with a lot of DAOs, as well, just as part of my professional capacities.
>> JARRELL JAMES: Awesome. Myself, I am Jarrell James, I will be moderating the panel and hopefully not messing it up. I come from decentralized technology, and have a history in chemistry and a Co‑Founder of a project called Internet Alliance with Fatemeh Fannizadeh over there and we are focused on Internet resiliency, different infrastructure and standards to achieve that with fours populations depending on what their needs may be. I think we could highlight some main points.
The DAO Model Law is something that is frustrating a good portion of society inside the hyper technical space, trying to push forward decentralized technologies. There is overwhelmingly a law that is either with municipal authorities, or international Coalitions and other authorities.
So this is a good way to go into why it took three years and a little about what it is from Silke.
>> SILKE NOA ELRIFAI: Hi, guys. If you are here in the presentation you have heard about DAO. They represent a new form of coordination and collaboration that has not existed until very recently. It is an opportunity for Global Organizations and a few, many of you are from Global Organization to look into the coordination opportunity and it is desperately needed as you can see from the recent geopolitical changes for the increasingly multimodal world.
They face, as Jarrell said, legal uncertainties that can be very detrimental to their development. And, Rick, if you could just move to the next slide.
So, why do the DAO Model Law? It is a need for legal organisations to have a personality and capacity. Just click it through, if you could. So that DAOs can actually interact and interface with the Blockchain world. Companies do have limited liability, and that is why they are so successful. This is not the case for DAOs, and to ‑‑ however, they need this to protect the contributors, and you might have seen ‑‑ now it has been quite a few ‑‑
Not a lot, but some jurisprudence on the topic. And this has been going on for the last three years and we need to continue to look into those.
There is a need for legal personalities so that DAOs factually have standing, for example to sign in court, and a lot of DAOs at this point in time are not registered anywhere, which means they do not pay taxes anywhere. That needs to find a solution.
Then there is also overall generally a need for a legal certainty and predictability, again, to interface with the Blockchain world.
People have asked us, several jurisdictions around the world, what they have done is try to make their jurisdiction more hospitable to DAOs.
And they will ask us why do we not just incorporate a company, an LLC, a corporation? Shouldn't that be enough? Why are we actually, you know, pushing for something new?
The reason for that, Rick, if you could just move one further ‑‑ next slide, please. We can summarize that, doos are trans‑national, pseudonymous and autonomous and incorporated on the Blockchain to centralize the tamper resistant ledger system and the question then is why do I need to be incorporated in the company's registrar.
To address all these points what we did over the last three years, we worked on this Model Law. The first one is functional equivalence and regulatory equivalence. These get mixed up quite a lot. They are two different concepts, but very similar.
The first one, the functional equivalence is between the tools and the tech to comply with specific legal rules.
So, what are the tools that are available to actually fulfill whatever the tech says.
For example, you have wet signatures and you have e‑sig signatures. And the more important concept is the regulatory equivalence, the means used to achieve the regulatory objective.
So, as an example, the deployment of the smart contract on the Blockchain with all the relevant data about the DAO. Might not be a functional equivalent into a registration with a regulatory policy objective, of the publicity and certainly fully achieved, or we, at least, think it is full I achieving this goal.
And based on those principles, we came up with the Model Law, so, Fatemeh will continue on this.
>> FATEMEH FANNIZADEH: Okay, so I will still present on this slide show. What you will see on this slide is the structure of the Model Law that we drafted, which is, itself, a 50-page document with the commentary. I am not going to enter into the details of the various chapters, but you can see that it basically tackles all of the points that we tried to initially pay attention to incorporate formation.
So, it being rights and obligations. The purpose and activity of the entity, the Governance requirements that would lead to fulfilling the minimum conditions to have legal personality and limited liability.
Some exceptions to that, we also have in the corporate world, some other rules about internal Governance. We highlighted the absence of implicit fiduciary duty for any one Decision Maker within that novel form of organisation, because this is one of the big risks that people who are involved with DAOs are concerned about, whether or not they will be considered as a fiduciary bearing the risk of activity of whatever the entity is.
But if the DAO has been granted legal personality and liability then there is this absence of fiduciary, as well, within the scope of the Model Law.
We further went on the discuss the particular provisions about the nature of the Blockchain itself.
If you are familiar with people moving away from a Blockchain to another version of it and so on, so they are very technical possibilities that exist in very different forms in the corporate world, so we had to tackle the problematics there.
And then we had some other provisions and briefly deal with tax, which is something we could not satisfyingly cover within the DAO monologue because it is so reasoning‑specific.
We wrote this a few years ago, published it and what happens since? Usually this guy moves around and looks like lost and looks for an answer where is the adoption.
So, the adoption is ‑‑ as we put in the global context of the fact that when we wrote that Model Law and published it, it was quite early, even in the technical space for DAOs and also for legal space, like the jurisdictions, to grasp this novel form of entity and understanding and decide how you want to regulate it, if, even, they wanted to regulate it, and should they want to regulate it, then whether it should be through, for instance, implementing the Model Law, or just finding other ways.
And since the publication of the Model Law, we have seen many developments in various jurisdictions. The three first ones listed, Vermont and Wyoming and the Marshall Islands, have decided to tackle the question of the relationship and jurisdiction's relationship which is a form of entities through a vision that is not one of the Model Law, but is very important to pay attention to.
They, for instance, decided that it is in or the to interact with the legal system and other corporations, and just overly their jurisdiction and globally through their just dictions, they have to, for instance, incorporate an entity there, or somehow incorporate their DAO entity within that jurisdiction with a novel form they came up with .
This obviously has drawbacks.
To understand the attempts here, I like to give this example that Blockchain and DAOs, they speak their own language. It is a form of association between individuals who decide to pull together some form of Treasury or asset and govern it in a global way that is novel in comparison to what we have been doing so far.
Like, association usually amongst people done within a geographical zone, a country, a jurisdiction, an Internet and hyper‑connectivity and whatever opportunities that the Blockchain technology offers allows people to interconnect and join within a purpose within a more global scale.
So, for these two systems to interact, we need to somehow bridge this interaction and we tried to do it through these incorporation methods, but then the Model Law has also been considered by other jurisdictions and implemented, adapted and implemented only in one so far.
Here you can see that Australia has analyzed it, and the United Kingdom, it actually appeared in one of their works. And in St. Helena is considering it. New Hampshire, as well. But the State of Utah in the United States decided to actually adopt and adapt the Model Law approach.
But it did make some modification to that. And if, Rick, you can go to the next slide, please.
So, Utah, what they did, they took the Model Law and tried to fit it within their own jurisdiction system that is currently existing. For that they had to make adaptations, of course.
But one of the features of the Model Law, it is very core to the whole exercise, that Utah parted with, is one where the Model Law would not require registration of the DAO and feels the conditions of the Model Law should suffice for it to recognize the legal personality, while in the State of Utah, they said, yes, but it also needs to reduce within our jurisdiction. Rick, please, the next slide.
So, here is just a screenshot of the bill if anyone wants to look further and read the bill. Next slide, please.
This is a screenshot of the registration provision, where it says that it has to nominate one registered agent within the State of Utah. I think they were attempting to have a point of connection within the jurisdiction in order to speak to the DAO entity.
I can break here. If any of you have questions, or otherwise we will move to ‑‑
>> JARRELL JAMES: We can stop here for a second and help everywhere, what did we hear as a review. We are talking about decentralized autonomous organisations.
They can be collectors of people, but maybe more relevantly for the IGF. It can be Coalitions of companies or boards, as well, that are all coming together under a shared mission. That shared mission would require them to have some kind of legal interaction with various bodies around the planet, and I think what you guys have just done really well is explain all of that, but also the issues with where this philosophy tends to run up against a wall, and that oftentimes these jurisdictions.
If anybody does have any thoughts, I would encourage you to start maybe thinking about your own Governments and jurisdictional issues that you have considered, and, yeah, get your questions ready for us for later.
But, yeah, I think if we want to move into explaining the first challenge of the DAO Model Law moving toward. From there we can take into account audience participation of other challenges you may be thinking could be propping up in your own places, or could pop up in examples you have seen in the past, so I will hand it over.
>> SILKE NOA ELRIFAI: I think one important factor, we have prepared two challenges. The reason we come with this challenge here, here at IGF you have a lot of Government officials and Governments consider DAO legislation.
What we face with Utah, basically, they adopted the monologue wholesale, with a few exceptions, but for registration requirements. But the core of the Model Law is not to have DAOs have to register, because they are global entities.
With ourself wondered why this is the case, and what we can do to improve the Model Law, because we are working on a version 2.
The registration requirement basically what we said, earlier we had the functional equivalence of the regulatory equivalent principles. We feel that the publication on the Blockchain, the registration on the Blockchain, the publication requirements and all the requirements we put into the Model Law in relation to that is regulatorily equivalent to registration in the jurisdiction, but it seems that this is not the case for Utah and also other jurisdictions we have talked to.
>> JARRELL JAMES: So, is actually, I wanted to do a little bit of audience participation on this. Like, what would somebody think is one of the biggest hesitations of why they would want to interact with a single person, or have a single entity, single person, registered in their jurisdictions? Is like, raise your hand and ask, answer that question if you want.
But we have, I think, a lot of people tend to tell us, like, it is because of liability. It is because of liability, it is because of liability. I don't believe that is exactly where it actually comes from from these governing bodies. That is not what their concern is.
>> SILKE NOA ELRIFAI: I mean one other issue that is usually the white elephant in the room is the taxation. Without registration ‑‑ jurisdictions that currently consider making a hospitable environment for DAOs, I wonder, this is basically because of the they do not feel registration requirement in their own jurisdiction. I am very much interested to hear your pan in that. Because obviously within the Model Law, this could be dealt with new, different taxation rules on DAOs.
>> JARRELL JAMES: Yes. I want to give our participants online a chance to tune in here. Morshed, would you like to speak to this?
>> MORSHED MANNAN: Yes, thank you. I won't take up much time with the interventions that have already been made. But I think in addition to the issues of taxation, one of the issues we found as a challenge when it comes to establishing regulatory equivalents has been what are considered to be incorporation fees. Which is, I guess, a type of tax, or is a type of levee that a state expects an entity to pay when they are filing.
We anticipated that the revenue implications would be something that they would take into account, but in the transposition process, this was quite an eye-opening aspect of it, that this came up again and again as a discussion point.
So, I think going forward, when we look at different jurisdictions to work with with respect to the Model Law, the issue of regulatory equivalents cannot just take into account trying to meet a policy objective, but has to hands‑on take into account the financial considerations, as well, and whether other way of trying to meet these considerations, whether that is having a pool of assets that, you know, is kept to pay for these sorts of fees. It could be something done not necessarily individually borrow registered DAOs as a group. There can be appropriations to do this, but just trying to establish a policy objective would not be sufficient.
The other point that I want to add is that in addition to this issue of registration, registered agents and so on is the issue of accreditation. Who will verify the different points I mentioned for formation on the DAO Model Law, who gets credit that this is happening, who gets to audit and so on.
We found that different jurisdictions have different views about who this should be. Some have said, okay, a private accreditation body that sort of does this assessment is fine. While others have said, no, we would want to have some entity in our state, something that the State authorities trust, to be able to do this so they know the formation requirements have been met.
Again, this will be an issue to consider when we try to establish regulatory equivalents in other contexts. And, yeah, I will hand it over to Rick or anyone else who would like to add to this, or back to you.
>> JARRELL JAMES: Yes. I think that was a really solid overview. I want to keep us a little bit moving forward on this because I think the regulatory question is just going to come up again in this next little bit.
I think what we are not discussing yes, while we are not fulfilling maybe the philosophical background and ideologies of the municipal authorities and governing bodies, there is also a moment are they are not fulfilling the decentralized ideology and the purpose of having the decentralized organisations being able to collaborate in both a mathematically ledgered way, on a Blockchain, and also in a way that allows for a number of different Stakeholders to combine themselves under one Coalition and demand recognition on that basis.
Why I wanted to bring up the conflicting philosophies then around this, for our DAOs, I think it is a really important part of DAOs, the ideology around that, that people want to be able to make movements in private and secure environments.
And privacy, by its very nature, I think we are learning, is kind of anti‑state in some ways. I think there is a desire to eradicate true privacy on the digital sphere, and DAO represents a collective movement trying to maintain the privacy of some of its members and not put them in positions of compromise.
So, I wanted to hand it over to you to start off on the challenge, too, and discuss where privacy fits into all this, Fatemeh?
>> FATEMEH FANNIZADEH: Yes. Thank you for this. I wasn't going to comment on the previous challenge to cite some case laws, but your prompt actually requires a response. You said that privacy is anti‑state. I think this is fundamentally not the case.
Actually, privacy and a right to privacy is a Constitutional right in most places and is actually why it is very aligned with State mission.
So, privacy is not anti‑State, but this is part of the current narrative we are hearing more and more, that privacy threatens some of our other rights. Sew privacy needs to be compromised with to protect and sustain anti‑money‑laundering rules, for instance.
Privacy should suffer, encryption should suffer in the context of messaging apps, for instance, to protect the rights of other populations against some form of harmful content that can go through these apps and so on.
So, privacy as a right, I think, is not under question, because it cannot be legitimately questioned. But here there is the question whether privacy primes over the other rights.
I even wonder whether there is an actual legitimate question in itself. Is it a dichotomy of between should we protect privacy, or should we protect, tourism, financing and money laundering? I think this is a false dichotomy that forces us to choose one over the other.
While I believe that we can protect both, and we should aim to protect both, and fulfill all of our rights without harming one for a certain narrative. Fashion. Silke, I want to hear your response, and Rick, online, a deep professional in the privacy design space, I would love to hear a couple of minutes of thoughts following Silke. Give them a 1‑2.
>> SILKE NOA ELRIFAI: One thing I wanted to add, because right now we haven't mentioned this, DAO's promise on transparency, meaning that everything is transparent right now.
It is actually ‑‑ I am not sure DAOs are actually advancing privacy at all. It is the opposite. They are not advancing privacy. They have been undermining it. And we are trying to get it back.
Also, the Model Law as it stands right now, its premise is on transparency and how transparent everything is, and that leads to regulatory and functional equivalents, and now we have seen several bad results out of that.
One is, for example, that DAO workers, their right to have privacy of payment is being undermined, because they are getting paid by the DAO. Everyone can see they are paid like X amount. Whereas anyone who works for a company just has this privacy. No one necessarily sees a person's bank account.
So, what we are trying to do is trying to get privacy back into the Model Law, and that is a challenge, because DAOs are usually associated with, I mean, they are squarely in the Cryptocurrency space, and there are KYC rules, and anti‑money laundering rules and regulators would love DAOs, at least, to stay transparent while we are trying to get this back, to a certain extent.
>> JARRELL JAMES: Yes, Rick. I think you are online. I love what you were saying how DAOs are more transparent than the salaries of CEOs and corporate entities. So, with the transparency, I don't know if there is a lot of understanding around that. So if you can comment and, yes, Rick, I would love to hear your thoughts around the design of these pieces.
>> RICK DUDLEY: Yes. I think there are a lot of issues around privacy. There is a fundamental misunderstanding in my experience when talking to regulators, or sort of hearing the arguments of regulators secondhand, more precisely. They seem to believe the medium is special, has special properties that requires special treatment. And I think that is very misguided.
I think the medium being Internet communication, frankly, and signed, cryptographically signed messages, not even encrypted messages, really should be a simple enough Mechanism that we should be able to educate regulators on how existing laws, protections and regulations can be applied in a way that both satisfies the requirements of the existing online community, as well as the regulators.
So, for me, a lot of these privacy conversations are, you know, to Silke's point, why are we giving up privacy? There is a technical limitation, there is sort of an engineering practicality that is causing that at the moment, but we shouldn't expect that to persist in perpetuity, and we should be able to, much like Fatemeh was saying, able to, you know, have the privacy that we are constitutionally guaranteed.
I think that is actually, maybe the bigger issue. There is an internal struggle within any Government that I am aware of, where they want to know what people are doing in spite of the fact that there is a constitution, or some other legal constraint on their ability to do that inspection.
I feel like this is sort of classic, traditional Internet privacy issues. It is not really distinct. The DAO privacy issues aren't really that distinct from normal surveillance compromises, I guess you could call them, because surveillance still occurs. We can't really avoid it.
>> JARRELL JAMES: I think just touching on that, you were saying that there are ‑‑ we shouldn't give this up and there are ways to reconcile this. I fully agree. I think we all do. I would like to clarify that I think what is striking to me is that as things move toward a digital space, now we are starting to see this idea, this perpetuation that privacy is anti‑State. That is kind of where I am coming from on that.
I would like to quickly discuss the differences in model 2, what approaches are being taken around reconciling these mildly ideological differences.
That is an open question to any of the panelists, if you would like it. Just take it.
>> SILKE NOA ELRIFAI: Hello? Yes. Attempts to recreate the privacy that a normal bank account, or like a payment into a bank account by a company would give you, I am probably not the right person, because that is from a ‑‑ that was a technical team who developed it early on. There is a blog post, actually, about that.
But, first, about that one little point, how can DAO workers get paid without everyone knowing how much money they get? And what regular basis they get the Funds?
You may have seen this if you were in this space in relation to privacy pools. What it does, you send the Funds into ‑‑ am I the right person to talk about this? Maybe Rick wants to talk about that.
>> JARRELL JAMES: Rick can talk about privacy pools.
>> RICK DUDLEY: Yes. I am capable of talking a little about privacy pools. I understand the underlying technology well enough. Yeah, in fact, I should probably should have mentioned this earlier.
I run a company. It is a registered company in the United States. I pay my taxes. We get paid on chain by various Blockchain foundations. I put those payments through Tornado Cash, specifically for this reason, to add some financial privacy to the, my employees, frankly, who get paid this way.
I thought it was a bit bizarre and invasive that anyone in the world could see what they are being paid. There is also a security issue that I am always sensitive to, a physical security issue of people knowing how much you are getting paid. So I use Tornado Cash. I have all my notes. I can prove to any regulator I was not a terrorists. I paid myself and what have you.
But all the rigmarole, the controversy around that, even prior to some of these other claims about funding terrorism that have also come up, again, it is just a lot of confusion. It is a lot of regulator sort of ‑‑ regulators trying to hammer in a screw.
A technology really trying to get you back to the basic level of privacy that you would have had otherwise with a privacy pool. So, being able to say I sent this transaction in private to someone else, and now some regulator asked me regulator asks me or requires that only certain types of transactions make it onto the payment rail, for example, the Fiat payment rail.
Private pools allow you to have privacy when you are transacting, but then reveal it upon request and demonstrate that you are not ‑‑ that your funds never were tainted by funds that are otherwise restricted or regulated.
>> JARRELL JAMES: All right. Thank you. I think in the last few minutes, I want to ask the panel ‑‑ and I think it will be more fun if we do a little hypothetical situation. So, each person, let's imagine you are talking to the lead regulator of, let's say a major world power.
What is something that you would want to get across to them? And what is the Call to Action to the legal practitioners of that Government around this DAO Model Law that if you had five minutes in an elevator?
>> FATEMEH FANNIZADEH: Thanks. I can go first, maybe. I think it is about the lead power of the world. This is a Global Technology that knows no borders. It should not primarily be regulated by one so‑called lead power.
I think that what I would want to tell all of the regulators and practitioners who are interested in this space is not to rush into regulating or trying to capture through, or shape this technology to regulating right now, because the technology itself is still growing organically, and we need to give it space to grow.
I believe that all of the regulations that exist already, anti‑fraud regulations, security regulations, do grasp some of the activities within the Blockchain technology and we do not need a new form of regulation right now.
What we need is a Sandbox. We need to give the pox for the technology to mature. What we heard often during the past days here is how will the internet look like in 20 years?
I think that the Internet will definitely look different in 20 years, and it will probably ‑‑ and I heard this often ‑‑ which is positively surprising ‑‑ that it will be probably decentralized, or have more decentralized components.
For that to materialize in a positive way, I think that we need to care for less capture right now, and more Sandboxing in order for the regulation to deliver on its promise.
>> JARRELL JAMES: Rick and Morshed, a couple closing thoughts? Maybe trying to keep it to two minutes.
>> RICK DUDLEY: To mirror that previous comment, I strongly believe most of what we are doing in this space with DAOs fits under existing regulation in the vast, vast, vast majority ‑‑ there might be one or two exceptions that I can't even really think of right now.
I feel frankly as a tax‑payer, I feel it is the responsibility of regulators to educate themselves and understand how these technologies work, so they can then apply the law judiciously to new technology. I am happy to help them with that.
There are plenty of people interested in helping and supporting that, but I don't think that we need to create a lot of excessive new laws. I think it causes more problems than it fixes.
You know, that is basically it.
>> JARRELL JAMES: Morshed, I will give you an opportunity here. Two minutes?
>> MORSHED MANNAN: I wanted to add that we are starting to see case law emerging, as has been alluded to, that starts looking at DAOs. And in some cases, this isn't ‑‑ is basically trying to achieve regulation by enforcement of certain existing law, and as we started to see, in some cases, this can lead to all manner of unintended consequences, especially if this, let's say, gets appealed to an appellate court where there is a decision that is made that creates precedent.
I think issues that we raised in the Model Law ranging from whether there should be implicit fiduciary duties, or questions of tort, all the way to issues of, you know, how to deal with the limited liability, or joint and several liability, the rescope of this, has to be something that we should also try to proactively shape in the types of regulatory Sandboxes that Fatemeh mentioned, hopefully with the idea that judges will eventually also come on board to start interpreting the law in a way that doesn't end up constraining this space and creating new sorts of harms.
Because, while we wait, or wait and see, this risk might also emerge.
>> SILKE NOA ELRIFAI: My last comment will be to say, even if regulators or jurisdictions do not want to implement the Model Law, because, of course, there are a lot of issues with it, too. At least get rid of if default characterization of DAOs as a general partnership, or unincorporated associations, that give joint and several liabilities to any of the contributors.
This is one of the things you have seen recently, which had a very chilling effect ‑‑ Schilling, not chilling ‑‑ a colding effect on DAO contributions, and how ‑‑ and how the developing of code for DAOs. We have seen this, especially in the Ubi case in the US, recently. This needs to go away. So you need the really develop jurisdictions because if you don't, you will not have much development in the area anymore.
>> JARRELL JAMES: I can echo the sentiment. The code in and of itself is not a crime.
I want to bring this all together. Legal frameworks and regulation can be very dry in understanding the future. Okay, well, how does this actually apply to the future. There is a lot of Coordination Systems that existed before DAOs and this is just another innovation in the concept of Coordination Systems.
I think what the Model Law has done and what COALA is trying to do is push forward the field of coordination and maintaining a lot of new and exciting technologies such as Blockchain, infrastructure and organisations.
So, for relativity toward this event, there is a lot of Civil Societies here.
There are a lot of people that could be coming together and making their own Coalitions.
For those online watching, I am sure we have seen a lot of frustration making movements inside the planet and making changes inside of different jurisdictions. I am really excited to see DAO Model Law version 2. So, we will be around. Feel free to discuss your Governments for us, but, you know, send them our way. Thank you.