The DAO UTokyo conference brought together a diverse group of practitioners, policymakers, and researchers to discuss the status of DAO-related developments in Asia, and to evaluate the potential of DAOs to reshape various aspects of society, ranging from economics to governance.
Dr. Yongbeom Kim, President of Hashed Open Research, and Jin Kang, Head of Legal at Hashed, attended the DAO UTokyo conference held on February 6-7, 2024, in Tokyo.1 The two-day conference was hosted by The University of Tokyo, Stanford Cyber Policy Center, and the Decentralization Research Center. The conference brought together a diverse group of practitioners, policymakers, and researchers to discuss the status of DAO-related developments in Asia, and to evaluate the potential of DAOs to reshape various aspects of society, ranging from economics to governance.
The participants of the conference agreed on a joint statement (reproduced below), in which the need for continued education of policymakers and legislators was emphasized. The event featured plenty of insights worthy of sharing in greater detail, and this report aims to highlight some of those insights. While this brief report does not feature all the presenters or cover all the themes discussed, it is the authors’ view that it gives the reader insights into the key concepts and considerations that were discussed during the conference.
In particular, we would like to highlight the following recurring themes.
Greater Legal and Regulatory Certainty: There is a need to broaden the topics of discussion for the blockchain industry beyond that of US securities law concerns. While an important issue, it impedes the industry from identifying other important topics, such as the potential role of DAOs as a vehicle for new social movements, and impedes the industry from developing truly innovative applications in tackling global issues ranging from depopulation to deforestation. Expanding the conversation to include these broader implications can catalyze a more holistic development of blockchain applications and promote not just financial innovation, but also contribute to social and environmental improvements.
Recognition of Political Differences and Calls for Enhanced Cooperation: Political realities in each jurisdiction impact its respective regulatory approach to the blockchain industry. For example, while Taiwan is focusing on developing a DLT-enabled social infrastructure via Digital IDs (DIDs), Japan and Korea have traditionally focused on regulating crypto assets from an investor protection perspective, which may curb rather than promote innovation. While these divergent approaches are understandable, there should be more of a focus on the borderless nature of blockchain technology. By encouraging cooperation among nations to see beyond local concerns, the industry can leverage the strengths of blockchain technology to address universal challenges such as economic inclusivity, access to social justice, and climate change.
Interdisciplinary Approach to Decentralization: The complexity and novelty of blockchain technology and DAOs necessitate an interdisciplinary approach that combines insights from technology, law, economics, political science, and other disciplines. This approach is crucial for understanding the multifaceted impact of decentralization on governance structures, legal frameworks, economic models, and societal norms. By integrating diverse perspectives, stakeholders can develop more robust, equitable, and effective mechanisms that align with democratic principles and ensure accountability.
Furthermore, interdisciplinary collaboration can aid in identifying ethical standards to ensure that the deployment of blockchain technology promotes inclusivity and respects the rights of all participants. Such a holistic approach encourages the development of governance models that are not only technically efficient, but also socially responsive to the evolving needs of global communities.
JOINT STATEMENT
We, the participants of DAO UTokyo 2024, propose:
1. Intercultural comparisons among countries about DAOs and decentralization.
2. Interdisciplinary collaborations among scholars to study DAOs and co-create new knowledge.
3. Continued education of policymakers and legislators on the beneficial use cases of DAOs.
4. Clarification between confidentiality of private data and application of cryptography.
5. Support for and emphasis of diversity and equity in our communities and circles of influence.
Welcome & Introduction to Concept
Connor Spelliscy, the Executive Director of the Decentralization Research Center and Co- Founder of the Blockchain Association and Canadian Web3 Council, delivered the introductory speech.
He highlighted the lack of a clear definition of decentralization but emphasized its core concept: the transfer of power from a small authoritative group to a larger distributed network.
Spelliscy encouraged collaboration and innovation to understand how decentralization challenges the traditional notions of assets and processes necessitating centralized intermediaries. He stressed the need for engaging with regulators and presenting compelling use cases to explain and educate the revolutionary potential of crypto.
Finally, he highlighted his experiences in organizing similar conferences worldwide. With DAO UTokyo being the first of its kind in Asia, Spelliscy noted that significant progress was underway, indicating a notable shift in the center of gravity of the crypto industry towards Asia.
Socio-economic ramifications of DAOs and their distinctive capacity
Professor Soichiro Takagi, Professor at The University of Tokyo's interfaculty initiative in Information Studies and Director of the university's Blockchain Research Initiative, spoke about the significance of DAOs in various economic aspects—as new forms of organization, community, investment and even value circulation.
He cited examples of municipal governments in Japan exploring DAOs to incentivize community engagement and innovative ventures in real estate to showcase their diverse applications. Professor Takagi emphasized the socio-economic impact of DAOs and their unique ability to combine passions with incentives.
Understanding the Advancement of Web3 in Taiwan
Yen-Lin Huang, a web3 architect in Taiwan's Ministry of Digital Affairs (MODA), provided insights into the state of Web3 in Taiwan.
Huang initially identified two Web3 avenues of relevance for the government: crypto assets and DLT. While the Financial Supervisory Committee manages the former, MODA focuses on DLT research such as exploring how to create digital public goods on blockchain infrastructures. He then highlighted how MODA is currently piloting three case studies on DAOs, DLT, and retroactive public goods funding.
Having initially delved into the legal challenges of recognizing blockchain concepts such as DAOs in Taiwan, Huang observed the difficulty of revising existing laws to introduce DAOs into the ranks of companies, associations, non-profits, or cooperatives within the Taiwanese common law system. Instead, he pointed to the Mixed Certificate Authority (XCA) as MODA’s first pilot to link the on-chain and the off-chain worlds. Huang explained that DAOs could become legally recognized if the XCA could serve as a bridge between a particular wallet address and a recognized legal person. This registration system could provide more trust and transparency for DAO activities.
Huang also found that having decentralized identities (DIDs) was crucial to the overall recognition of DAOs in Taiwan. Huang noted that DIDs would not only provide a crucial point of global Web3 access for the Taiwanese people, but also ensure their privacy through zk-proof encryption. Huang particularly emphasized the value of the latter in connection to Taiwan’s sensitive relationship with China, with increasing censorship and threats to its independence.
The third and final pilot case addresses a potential cumulative effect on public and private partnerships. Huang noted that while Taiwan has seen many social movements come and go, it is difficult to sustain them on a longer-term basis due to the lack of infrastructure connecting these private organizations to the government. However, Huang noted that through DAOs and DIDs, they can find new ways to retroactively fund public goods by identifying and providing funding to recognized stakeholders within the Taiwanese civil society.
While the crypto innovation scene in Taiwan is not as large as that of Japan or Korea, digital public goods ecosystems are growing rapidly. Taiwan's cultural inclination towards working together and maintaining its sovereignty through social movements contributes to the flourishing digital public goods ecosystem.
Insights on Web3 Policy and Business Culture in Japan
Hal Seki, representing the Japan Digital Agency, provided insights into the state of Web3 policy and business culture in Japan. Seki was also involved in the agency's web3 study group, which published a report on Japan's efforts to foster digital innovation. Additionally, he highlighted his role in organizing Code for Japan, a non-profit organization that has promoted civic tech activities and served as a grassroots community for over a decade.
He emphasized the importance of recognizing contributor activities within civic tech organizations by rewarding their valuable contributions in the form of crypto compensation. However, he noted Japan's conservative regulatory response to the Mt. Gox hack in 2014 led to disproportionately stringent regulations on Virtual Asset Service Providers (VASPs), which negatively impacted technology development and industry innovation for several years.
In recent years, Seki argued that there has been a fundamental shift with startups vocalizing concerns about Japan's lack of innovation in web3. This prompted legislators to initiate discussions on supporting web3 companies and led to the formation of the Digital Agency study group to allocate resources effectively. Seki highlighted ongoing discussions on creating new legal entities using DAOs with private individuals and collaborating with regulators to establish appropriate regulatory frameworks.
In terms of the business culture surrounding web3 in Japan, Seki noted that startups are developing new services for rural regions outside of major cities in Japan to combat extreme urbanization. While these local initiatives aim to bridge the social and economic gap between urban and rural citizens, their impacts are limited in scale due to the lack of private investment. However, as user experiences improve for web3 and as more institutions, as well as government agencies, see more promise, Seki noted long-term optimism for the greater web3 industry in Japan.
Web3 in South Korea: Insights and Trends
Jong-Goo Yi, representing Kim & Chang LLP and a member of the Korea Blockchain Association, provided valuable insights into the evolving landscape of web3 in the Asia-Pacific. Having previously served as the Commissioner of the Financial Services Commission (FSC) in Korea, he highlighted regulatory compliance issues related to crypto.
He expressed his fascination with smart contracts amid his background in securitization and structured finance transactions. He contextualized smart contracts and DAOs within the broader history of financial innovation and highlighted their role in bridging the online and offline worlds.
In discussing the state of web3 policy in Korea, he noted Korea’s bifurcated approach given its particularly cautious approach towards crypto businesses while acknowledging the importance of blockchain technology. He explained how concerns over potential losses among the active crypto trading population have prompted policymakers to prioritize consumer protection over financial or technological innovation.
While the government remains supportive of blockchain projects, particularly in areas like voting registration and public notarization systems, comprehensive regulations akin to those of EU or Japan have yet to materialize.
Regarding DAOs, he noted the absence of significant regulatory discussions in Korea, although some private actors have been active in the space. In terms of business culture surrounding web3, Yi highlighted two significant developments: the gaming industry's focus on play-to-earn business models, which faces legal restrictions domestically but finds opportunities globally, and the growing interest in Security Token Offerings (STOs) following government guidelines issued last year.
Despite regulatory challenges and criticisms, Yi expressed optimism about the potential growth of STOs and urged the government to nurture the environment around native crypto and underlying technology.
Stakeholder DAO: Hacking Corporates with DAO
Jason Han, Adjunct Professor at KAIST School of Computing, delivered a presentation on Stakeholder DAOs and their potential to revolutionize corporate structures. With a vast research ecosystem comprising over 270 labs and 5,000 researchers in South Korea, he highlighted the critical role of community cooperation in fostering mutual success. However, motivating researchers presents a challenge with traditional methods like startup stock incentives since most researchers are associated with academic institutions rather than as corporate employees.
Identifying three key challenges—legal structure, community organization, and contribution management—Han proposed the Stakeholder DAO as a solution. These DAOs would transparently organize researchers and provide clear compensation schemes for the researchers by offering them contribution tokens rather than stock. Furthermore, by utilizing smart contracts for contribution measurement, Professor Han emphasized that Stakeholder DAOs would allow equitable conversion of contribution tokens into tangible assets for the benefit of the researchers.
The official launch of Stakeholder DAOs in Q2 2024 will be accompanied by open sourcing of all processes and outputs. Professor Han highlighted potential applications beyond corporate contexts and suggested that startups and even non-profits could adopt Stakeholder DAOs to bridge the gap between DAOs and Web2 technologies.
Harmonizing Token Transparency: A Unified Framework Proposal
Miho Hirashita, Head of Legal Compliance at Crypto Garage, addressed crucial considerations surrounding the regulatory framework and ethical advancements in the crypto realm. In particular, she emphasized the importance of developing a regulatory mechanism to ensure that cryptoassets remain immune from market manipulation and conflicts of interest.
Hirashita advocated for embracing a disclosure framework akin to the registration model and drew parallels between American and Japanese security disclosure laws. In Japan, while virtual assets (VAs) lack explicit statutory regulations for disclosure, Japan's self regulatory body, the Japan Virtual Currency Exchange Association (JVCEA), has facilitated discussions among member exchanges to establish disclosure standards since 2018.
Looking ahead, discussions on disclosure frameworks for stablecoins are set to commence with preparations for the implementation of a stablecoin legal framework underway by June, 2024. However, challenges persist as regulators sometimes disregard private sector perspectives without fully grasping their operational complexities.
Hirashita concluded by cautioning against premature emphasis on the need for regulation in the absence of broader consensus and urged the private sector to proactively establish best practices in a bottom-up approach. She ultimately suggested a possibility of future web3 cyberspace governance shaped by regulations, nodes, the market, and tech architecture, which combined together could reshape current web3 development through improved market practices.
Exploring Innovative Local Revitalization by Leveraging NFT and DAO Initiatives
Dr. YB Kim, President of Hashed Open Research, provided updates on initiatives currently under discussion with local ministries in Korea, with a particular focus on how digital solutions can be employed to combat rural depopulation. Drawing from his experience in government and his concerns about rural depopulation in Japan and Korea, Dr. Kim highlighted the accelerating demographic crisis in South Korea with the projected fertility rate dropping to a concerning 0.6 by 2024.
Identifying 89 local municipalities in Korea as depopulated areas in 2022, Dr. Kim emphasized the urgency of addressing the plight of South Korea's rural areas. He found inspiration in Japan's progress, particularly its adoption of a relational concept to combat rural depopulation. This approach fosters connections with regions through non-residential engagements such as visitation, consumption, and cultural participation, and thereby encourages stronger and direct ties with communities.
Over the past two years, Dr. Kim noted efforts from local governments in Japan to harness NFTs and DAOs as innovative solutions to the rural depopulation problem from nearly 160 projects introduced. These forward-thinking initiatives challenge the traditional perception of local governments as cautious and slow to act and showcase their willingness to embrace innovation. For example, the Yamakoshi DAO project introduced the issuance of an NFT as a digital ID for community revitalization, with the Village DAO hosting 1,600 digital IDs which doubled the village's original population of 800.
Dr. Kim highlighted Japan's success as a basis for Korea to conduct more research and actively engage in serving as catalysts for regional revitalization. Currently, Hashed Open Research is in discussions with three local municipalities to establish a pilot program to consider a proactive approach towards addressing rural depopulation and fostering community development.
Issues and Recommendations of Web3 Development in Korea
Professor Jongsub Lee provided insights into the current landscape of blockchain and tokenization in Korea by emphasizing the growing importance of oracle keepers in executing smart contracts, particularly in the context of tokenization.
Professor Lee highlighted Korea's concentration on centralized exchanges as the main business model and efforts to open up possibilities for Security Token Offerings (STOs) focusing on non-conventional assets such as IP rights on K-pop or art. On the regulatory front, Korea is working to concretize the execution of the Virtual Assets Consumer Protection Act introduced in 2023, which aims to cover virtual assets excluding NFTs and stablecoins. As for traditional financial securities that are tokenized, they are expected to be governed by the existing securities law framework though amendments are required to accommodate certain technical aspects of using DLT.
In the current market summary, Professor Lee pointed out the dominance of centralized finance (CeFi) businesses, which offer both protection for traders and consumers but may limit innovation compared to decentralized approaches. He highlighted heavy government control, which could slow market development, and the lack of defined ecosystems for decentralized applications. Regulators are focused on protecting retail investors from speculation over altcoins due to growing negative perceptions and scandals, which exacerbate the knowledge gap among regulators and other stakeholders.
He emphasized the need for close collaboration between the private sector and the broader blockchain community, including global communities, to address these challenges and develop decentralized financial services and applications. He also noted the strong government-driven banking traditions in Asia, which may hinder progress towards decentralized solutions. Overall, achieving a robust decentralized ecosystem in Korea will require concerted efforts from both the private and public sectors.
Litigating the Ledger: Civil Liability for DAO Controllers
Eric Alston, Professor at the University of Colorado, explored the nuanced legal implications faced by individuals exercising material control over DAO assets or decisions in the US. He emphasized that DAOs, if not explicitly organized, may still have organizational forms applied depending on the jurisdictions they operate out of, especially in cases where civil claims are raised against the DAO. He shed light on the often-underappreciated civil liability risks inherent in utilizing other people's assets for revenue generation in a competitive environment within the web3 space. While courts typically defer to business decisions under the business judgment rule, there remain certain exceptions.
These exceptions include:
Negligent failure to act, which could manifest in the general inactivity of the treasury over a prolonged period, especially if the market cap of the token falls below the value held in the DAO treasury;
Self-dealing—where DAO controllers might vote themselves generous salaries through proposals clearly in their own interest, such as allocating unclaimed tokens from earlier issuances to founders and managers directly;
Potential breaches of fiduciary duties, such as overtly illegal actions; Violations of AML/KYC compliance;
Gross negligence; and
Transactions outside the ordinary course of business.
To mitigate these risks, Alston stressed the importance of consulting legal counsel and potentially choosing an appropriate legal organizational form to delineate fiduciary duties. He emphasized that each treasury decision within a DAO should be made with meticulous attention to these legal considerations, and recognized the potential legal ramifications involved in the absence of appropriate safeguards.
Revisiting Security in DAOs: Challenges and Opportunities
Yepeng Ding, researcher at the Japan Society for the Promotion of Science, provided a comprehensive examination built on the backdrop of security concerns following the notorious 2016 DAO hack. His analysis underscored the persistent nature of security issues within the DAO ecosystem, which continued to manifest with alarming frequency and had resulted in significant financial losses totaling over USD$6 billion by December 2023. This staggering figure served as a testament to the critical need for robust security measures within the decentralized finance (DeFi) space.
As for the multifaceted nature of vulnerabilities plaguing DAOs, Ding categorized them into six distinct types based on their root causes. These vulnerabilities encompassed a range of issues, including business logic flaws, reentrancy vulnerabilities reminiscent of the 2016 DAO hack, price oracle manipulation, insufficient validation mechanisms, access control flow discrepancies, and unexpected external calls. Notably, he highlighted that while the latter three vulnerabilities are not exclusive to DAOs or DeFi, they present pervasive challenges across smart contracts in general, underscoring the broader implications of security concerns within the blockchain ecosystem.
Delving into existing methodologies for identifying and mitigating vulnerabilities, Ding emphasized formal specification and verification techniques. The former involves abstracting smart contracts into formal models, while the latter entails formulating properties and conducting mathematical proofs to detect vulnerabilities. These techniques offer a systematic approach to assessing the security posture of smart contracts, enabling researchers and developers to proactively identify and address potential vulnerabilities before deployment on the blockchain.
Innovatively, Ding proposed a novel approach termed "formal implementation" and advocated for the creation of formally verified models and specifications prior to contract implementation. This strategy aims to preemptively mitigate vulnerabilities by addressing them at the design stage and thereby enhancing the overall security and resilience of DAOs. By adopting a reverse engineering process that prioritizes security from the outset, Ding’s framework seeks to instill confidence in the integrity and reliability of decentralized financial systems.
Looking Beyond “Full Decentralization”: Policy Considerations for DeFi
Oguz Genç, doctoral candidate at The University of Tokyo, explored the concept of "full decentralization" to address the policy considerations surrounding DeFi protocols, particularly in light of regulatory developments such as MiCA in the EU. He highlighted the ambiguity surrounding the concept of full decentralization, as exemplified by MiCA's exemption of fully decentralized protocols without a clear definition of what constitutes full decentralization. This lack of clarity extended to regulatory bodies like the European Securities and Markets Authority, which admitted uncertainty regarding the term's definition and its application on a case-by-case basis.
Genç identified research gaps in understanding non-technical factors of decentralization and the absence of connections between technical and practical aspects of DeFi. He delineated different interpretations of decentralization, ranging from technical considerations to protocol-level analyses and broader political-economic perspectives.
He further illustrated the nuanced nature of decentralization by drawing on examples from Ethereum-based protocols like Maker and Liquity, and emphasized the need for context-specific evaluations rather than blanket policy prescriptions. Moreover, he challenged the notion that centralization is inherently negative and suggested that alignment of incentives among stakeholders may be more crucial for successful protocol governance.
Genç also highlighted trends such as stablecoin issuers investing in US treasuries and underscored the evolving landscape of decentralized finance and its intersections with traditional financial markets. He underscored the complexities and policy implications inherent in navigating the decentralized finance ecosystem amidst regulatory uncertainties.
DAO 1.0 to 3.0: Changing Nature and Application of Technologies
Professor Soichiro Takagi delved into the evolving landscape of DAOs and traced their transformation from inception to their current iteration. He framed this evolution within the context of the destruction of existing frameworks by emphasizing three key elements: dissolution and reintegration, specific optimization, and individualization. Professor Takagi viewed DAOs as emblematic of the broader movement towards individualization to enable economic actors to tailor their activities to their own interests and resources.
Defined as systems facilitating self-coordination and governance through self- executing rules on public blockchains, Professor Takagi noted that DAOs have undergone significant changes since their inception. His earlier work in 2019 explored the decentralization potential of blockchain technology and highlighted the trade-offs between marketization efficiency and centralization efficiency.
He hypothesized that the success of DAOs would hinge on the effective coding of tasks to minimize uncertainty with each iteration reflecting advancements in task validation and expanded business applications.
In Japan, the emergence of DAO 3.0 has involved the integration of tokens or NFTs for community voting rights, thereby democratizing participation. Professor Takagi cited examples like the Digital Village DAO which facilitates community resilience and digital citizenship in localities. Moreover, he underscored the importance of supportive tools like Discord in fostering DAO participation and predicted a broader trend towards decentralized organizational structures in contemporary society.
Decentralized Science as Decentralized Innovation Commons
Eri Kawai introduced NFT SINRA, a regenerative NFT product developed by her company Paramita, which aims to address pressing climate change issues while supporting local communities. SINRA represents a novel approach to leveraging blockchain technology for environmental sustainability. Kawai emphasized the growing severity of climate change and mentioned its broader implications beyond just CO2 emissions such as biodiversity preservation. SINRA focuses on restoring and maintaining ecological balance while simultaneously supporting local communities.
The project tackles the declining state of natural resources, framing them as liabilities rather than assets. Kawai noted the detrimental effects of resource depletion, such as the decline in the timber supply in Japan leading to increased imports and economic losses for local communities. SINRA seeks to address these challenges by allowing individuals to purchase NFTs with the proceeds directed towards forest maintenance efforts.
SINRA’s innovative approach extends beyond financial contributions to include active participation in forest conservation and community engagement. NFT holders not only support forest maintenance, but also gain access to immersive experiences such as fieldwork, local festivals, and community events. Additionally, the project enables individuals to obtain carbon credits, thereby incentivizing environmental stewardship at the individual level. Through SINRA, Kawai shared that the company aims to create a symbiotic relationship between ecological regeneration and community empowerment, demonstrating the potential of blockchain technology to drive positive environmental and social change.
Liabilities of DAO Members
Professor Florence G'Sell delved into the question of developer liability in the blockchain space, sparked by the aftermath of the 2016 DAO Hack. Currently, there are two opposing views: while some advocate for holding developers accountable for vulnerabilities in their code, others argue against this notion by emphasizing the voluntary nature of participation in blockchain-enabled services. This debate is relevant in the blockchain industry as well as in the greater tech industry since there is a rising call to impose developer liability around the globe.
G’Sell highlights a notable case involving Craig Wright, who lost his private key to a wallet address during a hack that resulted in significant financial losses. Wright's company, Tulip, pursued legal action against developers, alleging their responsibility in helping to recover his Bitcoin wallet or paying damages. The developers responded by first underscoring the foundational principles of decentralization and autonomy within the Bitcoin network, and challenged the notion of fiduciary duty to token owners. So far, a preliminary ruling by the UK Court of Appeal has signaled partial support for developers' fiduciary duty but the final judgment remains to be seen.
In terms of the broader context, the European Union is grappling with the question of developer liability, particularly concerning software products. The recent agreement on a new product liability directive extends coverage to software, including AI systems, by introducing the possibility of holding developers liable for defects. However, defining defectiveness in software remains a challenge, as it hinges on the safety expectations of the public.
G’Sell ended by underscoring the need for caution, particularly regarding exemptions for free and open-source software developed outside commercial activities. While such exemptions may offer protection, many DAOs engage in commercial activities, raising concerns about potential liabilities. As regulatory frameworks evolve, the issue of developer liability in blockchain ecosystems remains complex and multifaceted, requiring careful consideration of legal and ethical implications.
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