Tag: CFTC

CFTC’s service of process to OokiDAO

#DAO #CFTC #CodeIsLaw

@JakeSenftinger
DAOs should be going the non-contractual route, not the corporate route. Non-contractual means: no (implied) willingness to be legally bound by any participant, contributor, or user. It is hard, but it can be done. If the system itself also isn’t fraudulent, then its code is law.

Why DAOs should not be treated like entities (otherwise, even Bitcoin might be deemed an entity!)

@LeXpunK_Army https://twitter.com/LeXpunK_Army/status/1602773063971512322
Last week, @stephendpalley argued for @LeXpunK_Army that the CFTC’s service of process to OokiDAO through an Ooki-branded website’s chatbox and Ooki-branded governance forum, each run by persons unknown, is not legally adequate due process.
The hearing was lively and interesting, with Judge Orrick asking good questions and both Mr. Palley and counsel for other amici making strong arguments that DAOs should be treated differently.
In our view, OokiDAO is not the kind of “unincorporated association” contemplated by the CEA or California service rules. It is merely a disparate, ever-morphing set of software users looking after their own individual, heterogeneous interests re: a smart contract system.
In contrast, the CFTC maintains that OokiDAO is “an entity” that runs the specified websites and bZx protocol as a business. The CFTC claims that serving notice through such websites is adequate to serve the entire DAO, as if the DAO were a partnership or corporation.
During the hearing, amici counsel emphasized that the CFTC has made no effort to serve actual human beings it could identify as Ooki token voters in the U.S–despite the fact that bZx founders Bean and Kyle are known OokiDAO members (under the CFTC’s definition).
We are pleased to report that Judge Orrick took notice of these arguments. Yesterday, the court issued an order to the CFTC to serve Mr. Bean and Mr. Kyle with legal notice of the CFTC’s lawsuit against OokiDAO. (PDF)
This step–i.e., requiring service of legal process on actual identified humans instead of mere websites of uncertain connection to DAO users–shows progress & is appreciated as a measure intended to provide fairness to DAO users.
Nevertheless, the order still evinces a grave misunderstanding of DAOs. For example, the order still mistakenly refers to OokiDAO as “an entity” and expresses the view that this entity has “actual notice” of the CFTC’s litigation.
The order also implies that if Bean and Kyle are part of such entity, then serving them provides notice to such entity. We think this is wrong.
Protocol DAOs like OokiDAO, when properly understood, are not entities, but rather are smart contract governance systems enabling each user to attempt to govern limited aspects of the system in the user’s own personal interests.
Because these users are not intrinsically aligned or acquainted with each other within a cohesive enterprise, the DAO is not an entity and cannot be sued or served legal process.
One way of seeing this is by comparing OokiDAO to Bitcoin. Although the “DAO” metaphor is not common for Bitcoin, Bitcoin can indeed be seen as a DAO made up of node-operators–in fact, this was how the concept of DAO was first surfaced in crypto
https://letstalkbitcoin.com/bitcoin-and-the-three-laws-of-robotics
We would argue strongly that despite Bitcoin being a “DAO” in all but name and being an arguable ‘unincorporated association of node operators,’ Bitcoin is not a legal entity and cannot be served with legal process or sued.
On the contrary, if you want to sue node operators, you have to serve each one with individual notice. You cannot serve legal process “on Bitcoin itself.”
This is because Bitcoin is not a legal person, and the interests of the people who “associate” through it are too diverse and they interact in too remote and stochastic a fashion to accommodate legal rules designed for entities.
The same should be true of OokiDAO and other protocol DAOs–in the end, these are just software systems, not legal persons, and must be treated accordingly.
Perhaps, for reasons raised by Judge Orrick, the CFTC or others, DAOs *should* be treated as persons–but in order for that to happen, we cannot rely on existing law. We would need to pass new laws expressly recognizing DAO personhood and explaining how to sue DAOs fairly.
Until that day, protocol DAOs should be recognized as software, not entities. If the CFTC would like to sue users of that software, in our view, they must notify and sue them individually rather than as a group.
We will keep working to educate judges and regulators about the true nature of DAOs and the best ways of handling them under the law.
In the meantime, we are pleased to have played some role in pushing this case in a better direction–though we will not rest easy until the right, fair and just treatment of DAOs under the law is achieved.