Where cooperative undertakings are today structured by legal rules written in static documents and animated by human action, blockchain technology is argued to enable encoded organisational structures, sets of self-executing organisational scripts1 in the form of a decentralised autonomous organisation (“DAO”) that runs entirely on “smart contracts.”2 This raises the possibility that data structures could approximate some or all of the functions of partnerships, charitable trusts, foundations, or corporations.3
In this Article, I ask “How should a DAO be apprehended by a legal system?” Law and markets are “locked into a dynamic process in which the rules that establish the game are continuously challenged by new contractual devices, which in turn seek legal vindication.”4 When facing patterns of behaviour enabled by novel technology, the question is whether to accommodate those patterns within the received legal categories (with adjustments, but ideally without systemic rupture), or to prohibit them in the hope that the sanctions discourage their use. Law competes with other modes of regulation—including the “regulation” inherent in technological systems themselves—and does not always have the upper hand. In the longue durée, the dynamic is one of accommodation in which the law’s received categories are adjusted. In particular, recognition is regulative as well as facultative: the law cannot regulate something it says does not exist. This Article thus explores the process of reciprocal recalibration between legal categories and novel socio-technical practices.
The most obvious candidate category is the corporation, a class of non-human entity historically associated with groups of individuals engaged in a common purpose that is treated as a single acting subject. In my view, a legal system could impose legal personality on a DAO. However, it is unclear whether the entity would be the web of smart contracts themselves, or the “body” of (human) token-holders. In either case, themes in an older debate about corporate legal personality recur—private autonomy, common weal, state concession, and agglomeration of wealth—which turn on judgements of value.
This Article comprises three parts. Section 2 is methodological. Several leading legal commentaries on DAOs start with an economic analysis of the “firm” that fits broadly, if not exactly, within the programmatic bounds of “Law and Economics.”5 Meanwhile, innovation has been motivated by a techno-libertarian ethos that emphasises individual exchange by technological means, circumventing intermediaries and obviating traditional governance structures. While not isomorphic, these approaches converge on the perceived need to reduce costs of economic coordination between individuals, particularly through constraint or elimination of human agents within the firm.
Section 3 is conceptual, exploring what might be gained by looking at DAOs from the perspective of legal theory. Drawing on legal history, my analysis follows the apparent agentivity of DAOs into an enquiry about the nature of legal subjecthood—of how groups are personified and assimilated to individuals. This is of primary importance to the question of legal personality, but also illustrates the inherently social nature of collective enterprises, the role of law in providing the conditions for economic activity, and suggests the range of considerations that should bear. Where looking at the “firm” foregrounds individual action within the structure of a market, looking at the “corporation” foregrounds group action as a mode of patterned behaviour.
Section 4 is normative, and ties back into the methodological choices discussed in Section 2. I refer to the “Legal Theory of Finance,” “Law and Finance,” and the “Law and Political Economy”6 movements, which all emphasise how legal concepts constitute, and condition, patterns of market behaviour. DAOs are presented as tools to reform a basic institution of financial capitalism, but there are reasons to view emancipatory claims with temperance.
Section 5 concludes with some observations on the question of DAOs’ recognition as corporate entities as a matter of doctrinal law. I do not defend a position on legal personality in this Article; rather, I open the question whether recognition or non-recognition is the best way to control the negative externalities created by collective undertakings.
The emerging canon of DAO-related literature emphasises reducing agency costs within structured patterns of economic cooperation. Ethereum co-founder Gavin Wood, for example, wrote in 2014 of his vision for “Web 3.0,” a “Secure Social Operating System” based on a synthesis of game theory and information theory.7 The political economy of the future will be a “bazaar economy”8 of nominally independent contractors in place of centralised firms. The de-centralisation we have witnessed in the production of software is just the beginning:
With Ethereum, crypto-law, Web 3.0 and the ilk, all aspects of services will follow the same route. The idea of a rigid organisation or corporation will evaporate and left will be the true essence of human interaction patterns, policed only by openness and information-theoretic mathematics. Whereas once the “interaction-pattern-manager,” “value-plumber”—or “corporation” for short—would be subject to laws on the emergent behaviour it was enabling, strict legality of the emergent behaviour will become increasingly less relevant as it becomes drastically pluralistic and unpoliceable with no entity, legal or otherwise, coordinating it or profiting from it.9
Wood’s vision combines a focus on individual action with scepticism towards state control and conventional forms of economic organisation. It posits an essential market as something naturally occurring that flourishes interstitially. Regulation and legally-sanctioned structures are, in this view, a source of distortion that should be removed—by technical means if possible.
Emphasis on the costs of organisation draws on a venerable tradition. Ronald Coase’s transaction cost approach10 emphasises relationships of authority and control within the firm as an efficiency-promoting structure, casting the firm as a context of local legal order. Firms coalesce because transaction costs arise between contracting parties in the market. The firm reduces these costs through establishing settled channels of direction and coordination. The so-called nexus of contracts approach seeks to explain how individuals coalesce into firms to reduce transaction costs.11 This approach stresses the incomplete nature of contracts in the “nexus” as a source of further transaction costs, namely agency costs (of shareholders managing corporate managers once ownership and control are separated). The property rights theory identifies the firm with a set of assets,12 arguing that firms arise, as conglomerations of assets, when contracts are exhausted. This approach again stresses the conflicts of interest between shareholders and managers of the firm.
The case for blockchain-based “firms”
A literature on DAOs by legal scholars has recently emerged that draws on these analyses. Several leading accounts take Coase as their starting point. Primavera De Filippi and Aaron Wright, for example, start their chapter on “The Future of Organisations”:
As described by Ronald Coase… people exhibit a natural tendency to organise into more or less formalised institutions—associations, partnerships, companies, corporations, or other types of organisations referred to by economists as “firms”—when the costs of engaging in market transactions are too high.13
Organisation occurs because it reduces transaction costs by decreasing the overall number of operations needed to perform a given set of tasks, and reducing uncertainty, opportunism, and complexity in the contractual apparatus required.14 However, organisations are imperfect, and entail transaction costs of their own; for example, the costs (accruing to shareholders) of supervising corporate managers. This sets the stage for arguments for using smart contracts to structure DAOs as a partial or total alternative to conventional forms of business organisation.
Wulf Kaal adopts a similar approach.15 Smart contracts “enable trustworthy transactions of any size with minimal transaction costs and high levels of transaction security.”16 Despite decades of innovation, the theoretical and legal infrastructure of conventional corporate governance has been unable fully to resolve the core agency problems within the firm. Blockchain-based structures can facilitate the displacement of intermediaries through code, peer-to-peer connectivity, crowds, and collaboration. Their “encoded” nature prevents circumvention by (human) agents, reducing the cost of oversight and monitoring.17 According to Kaal, “smart contracts enabled by blockchain technology allow for the comprehensive, near error free, and zero transaction/agency cost coordination of agency relationships.”18 DAOs thus challenge the notion that corporate governance requires (human) agency at all, and promise to create important decentralised equivalents of conventional corporate structures.19
Sinclair Davidson, Primavera de Filippi and Jason Potts present a rich analysis of blockchain technology not as a production-enhancing technology, but as a transaction-cost decreasing technology that enables new, more efficient forms of institutions:
If blockchains are a general purpose technology, then their significance is in being next in a line of transformative information technologies, each powering a productivity revolution: e.g. transistors, computers, the Internet and now blockchains. If so, then what matters is the estimate of the productivity dividend they might bring… But if blockchains are better understood as a new institutional technology, then what we have is the arrival of a new species of economic coordination… firms, markets, relational contracting and now blockchains. If this is the case, then what matters is what economic activities will shift to this mode of coordination, which is to say that the interesting question is the reorganisation of the institutional boundaries of economic coordination.20
An institutional analysis looks to how blockchain-based structures compete with firms and markets as alternatives for coordinating the economic actions of groups. The authors stress the ability of smart contracts to “sharpen the distinction between blockchains, firms, relational contracts, and markets.”21 This notwithstanding, here again the focus is on the technology’s potential to increase the efficiency of coordination.
Thus, we can see various strands of economic theory influencing the emerging legal literature. But all stop short of spelling out how the law should characterise DAOs as entities, and how DAOs relate to conventional legal types. This raises questions of method: what role should law and economics, respectively, play in our study of DAOs? And should our focus be so squarely on transactional efficiency in the first instance? The economic theories of the firm tend to disregard legal concepts, and are aimed at rationalisation rather than description; in effect, they provide caricatures that may be useful in a specific domain, but are not obviously the right starting point for legal analysis.22
Three problems with Law and Economics analyses of the firm
Charles Goodhart has argued that Law and Economics has, for too long, been a one-way street, subjecting legal phenomena to the methods and rationality of economics but taking little in return.23 Economic analyses are presented with normative implications for law, i.e. as reasons why the law ought to do this or that.24 David Campbell and Sol Picciotto observe that lawyers and economists operate at the interface between the public sphere of the state and the private sphere of markets. The dialogue is often compromised by a formalist view of both disciplines. This is especially true, they say, of Law and Economics’ use of transaction costs theory. Where Coase was aware of the epistemological limits of neo-classical economics, and tried to address them, “the concept of transaction costs which he pioneered has paradoxically provided a basis for the extended application of neo-classical economic methodology to all social institutions.”25
In my view, there are three main problems with lawyers taking (a formalist, stylised) economic theory of the firm as the point of departure. First, the firm, as such, melts away. In the “nexus of contracts” theory, for example, the firm has a fuzzy boundary with the external world of the market. Jensen and Meckling argue that organisations are simply legal fictions that serve as a nexus of contracting relationships between individuals; they define “firm” in fairly hollow terms, but argue that this provokes the right questions about why particular sets of contracts give rise to various types of organisations, what the consequences of those relations are, and how they are affected by changes exogenous to the organisation:
[I]t makes little or no sense to try to distinguish those things that are “inside” the firm (or any other organization) from those things that are “outside” of it. There is in a very real sense only a multitude of complex relationships (i.e., contracts) between the legal fiction (the firm) and the owners of labor, material and capital inputs and the consumers of output.26
“Personalisation” (I would say “personification”) of the firm is not just fictive but “seriously misleading.”27 The firm is not like an individual at all—it is a legal fiction that simplifies a complex process through which the “conflicting objectives of individuals (some of whom may ‘represent’ other organizations) are brought into equilibrium within a framework of contractual relations.”28 A firm is just a microcosmic market—the outcome of a complex equilibrium process. There are no ontological differences between a contract and an organization; organisations are just contractual arrangements “through which transactions pass smoothly.”29 Though we seldom characterizing a discrete market as an individual, “we often make this error by thinking about organizations as if they were persons.”30
This approach excludes questions that are crucial to an informed legal perspective. It fails to provide a viable contractual theory of the corporation, even on its own terms, employing a delimited concept of contract congenial only to microeconomic methodology. The “firm” side-lines, at the outset, the different legal forms a business organisation can take: “Consequently, it mischaracterizes corporate contracts, making normative and political assertions in the guise of ontological statements.”31 At best, the theory can make an important, but limited and ultimately heuristic contribution.
A second problem is that “firm” and “corporation” are often confused in the literature, but are distinct; at base, the corporation is the legal structure adopted for some firms, but not others. If we take the firm as our object of enquiry, to the exclusion of the corporation, we sideline important questions relating to the ownership of assets, to the relationship between shareholders (and other stakeholders such as employees) and the corporation, and to the role of corporate managers that property rights structure—i.e. the corporation being the legal owner of assets and its shareholders being the owners of intangible shares that entitle them to benefit from the productive application of the assets under certain circumstances.32 For certain purposes, looking at the firm helps to grasp the material reality behind the veil of separate legal personalities.33 However, for others, looking at the corporation is essential. In particular, describing the way that economic agents act collectively and the way that they interact as organised bodies with the broader political economy is an exercise in basic legal ontology that is indispensable.34
Simon Deakin explains a third problem. Legal texts are a source of data for social scientists on the nature of social referents (i.e. “the firm”), but it is convoluted for lawyers to start from a social scientist’s use of legal concepts. The law works through the establishment of categories that refer to social and economic relationships. Legal concepts are useful data for social scientists because they display a degree of stability; concepts must be stable over time in order to lend coherence to the legal system they structure, which in turn structures the material life of the community that the legal system governs. Nonetheless, they are not immutable: The same concept may be used at different times to justify different policy outcomes, and the content of concepts themselves may change.35 In formulating his theory of the firm, for example, Coase turned to a contemporary account on the law of master and servant—what we now call “employment law.”36 The “contract of service” would have presented itself as a stable, modern category on which to build his analysis, but it was specific to the time at which Coase was writing.37
There are two aspects to the artefact on which Coase built his general theory. One, a liberal market aspect, is the assumption that a work relationship consists in a bilateral exchange of property rights. The other, a communitarian aspect, is the assumption that the performance of work is embedded in a network of reciprocal legal relations structured by the organisational space of the enterprise. A relatively recent innovation in Coase’s day was to characterise the counterparty of the worker as the personified (incorporated) enterprise itself. That entity came to be seen as the counterparty—the “master” or “employer”—displacing earlier legal models in which work relations were characterised by multiple levels of “internal contracting” between workers, labour intermediaries, and the ultimate user of labour in the form of the employing enterprise. This change occurred contemporaneously with—and reinforced—a shift within company law towards seeing the corporation as a “real entity,” separate from its shareholder-members.38 It is this modern view of the corporation from which Coase took inspiration.
None of this means that the economic literature is useless, though it does suggest that legal scholars should look beyond the “firm” and to the relevant legal concepts directly.39 Foremost is the concept of corporate legal personality.
Modern lawyers take the corporation for granted. As G.A. Mark explains, the acceptance of the corporation as a fixture of the legal system over the 20th century means that legal theory and practice forgot its debates about the design, form, function, and operation of corporations, focussing instead on organisation theory and economic analyses of corporate behaviour. In consequence, the rhetorical convention of legal personality remains, but fails to capture the understanding of the corporation conveyed by any modern theory.40
In the legal prism, “firms” split into legal categories—partnerships, trusts, unincorporated associations, corporations, etc.—with important consequences. The primary question, mediated through the formation of contractual agreements and property rights in pooled assets, is usually the extent to which a “firm” is legally cognisable, and whether the object of legal analysis is a group or a set of individuals.
Lawyers use categories to refer to economic and social relationships. As J.G.A. Pocock argues, we think “by communicating language systems” that constitute both our conceptual worlds and the authority-structures, or social worlds, related to them; “the conceptual and social worlds may each be seen as a context to the other.”41 Deakin explains that these categories form a system, whose various parts operate together; the “corporation” is the nodal idea that informs subsidiary categories such as “share,” “capital,” “director’s duties,” etc. “The idea of the ‘corporation’, in its turn, is derived in part from higher-level concepts which operate within general private law, up to and including the notion of the legal ‘person’ itself.”42
A convenient shorthand for group agency
Shawn Bayern explains that the law has a history of recognising notional entities, including groups, and endowing them with the same abilities as it endows individuals. This shorthand technique simplifies the interaction between organisations and other areas of law, such as property and contract:
We could imagine a system in which partnerships or [limited liability companies] need a distinctive mechanism to initiate or defend lawsuits, own property, or become parties to contracts; instead, we integrate organisational entities into the rest of the legal system by means of a convenient abstraction: we treat them, for many purposes, as if they were individuals.43
A DAO organised as a conventional company or limited liability partnership would pose fewer radical fundamental challenges to the role of law. Questions would still arise around “algorithmic agency,” as agency holds different denotations in law and the social sciences versus the natural sciences and computer science.44 Can “smart contracts” perform acts-in-the-law on behalf of a corporation? It has never before been arguable that a set of individuals could be a legally cognisable group because an automated software process “acts” as their organ.
DAOs that purport to be agnostic to legal categories—to operate in a world apart—raise basic questions of whether we (i) could and (ii) should treat DAOs like persons, and what the implications of granting or refusing legal personality might be. This raises questions about the interaction of legal order and technical systems launched with the express or implicit intention to operate outside established legal categories. The placement of DAOs in the law’s taxonomy raises questions about the nature of legal personality quite generally. Why is it that a group ever appears more than a sum of individuals? What is it about action through a common organ (such as a company director) that forges individuals into a group? How does the attribution of actions and intentions flow through the figure of the corporation, its members, and organs?
Who are law’s persons?
Within the legal scholarship we can observe competing approaches to populating the law’s ontology of “persons.” The “legalist” approach is the thinnest: law’s persons are whatever the law posits as subjects.45 Perhaps the only ontological demand made is that the candidate be capable of action. Crucially, this might be through the actions of an agent. As Thomas Hobbes reasoned, “[a] person is he whose words or actions are considered, either as his own, or as representing the words or actions of another man, or of any other thing to whom they are attributed, whether truly or by fiction.” For various reasons, Hobbes drew a distinction between “fictive” and “artificial” persons, based on the agentive capacities of the representee, which I will return to below. There are “few things,” he argued, incapable of being represented by fiction: “Inanimate things, as a church, a hospital, a bridge, may be personated by a rector, master, or overseer.” Even an idol, a “mere figment of the brain, may be personated, as were the gods of the heathen, which, by such officers as the state appointed, were personated, and held possessions, and other goods, and rights, which men from time to time dedicated and consecrated unto them.”46
The meanings of “agency”
Along with idols,47 the corporation is a class of non-human entity to which we ascribe legal capacity. Corporations are animated through the agency of their human organs. Groups are per se incapable of action; their organs transform groups from objects into subjects. W.J. Brown observes:
As psychical realities in the individual find means of expression in individual action, so psychical realities in the group find means of expression in group action. But the individual is an organism with pre-determined organs for expressing individual will. The group is not an organism, and numberless difficulties have to be overcome when the group-mind seeks realisation in the external world.48
This is what economic theories of the firm obscure; if the firm is just a market, what matters is individual action (guided by e.g. price signals and constrained by e.g. transaction costs), not how individuals act together.
Persons fictive, artificial, and real
Subjecthood through representation shows that “agency” has two closely related meanings in law. The first, more general meaning is to be an entity that acts. The other, more specifically legal, is to be an entity that acts for another. The fact that “agency” in the latter sense is constitutive of “agency” in the former sense is somewhat of an old chestnut in legal theory. David Runciman explains that “corporation” denotes a phenomenon that at once demands abstract philosophical enquiry and provides the key to practical questions of law and politics:
[A corporation] is that form of association which stands apart from its individual members, with a distinct identity of its own. It is an association capable of action in its own right, or at least capable of action in its own name. To put it another way, a corporation is that form of human association which is not constituted by its component parts—by its members, its officers, its property, its rules—but is separate from all these.49
It is obvious that the law plays a role in the creation of corporations, but there are questions about what sort of entity it is that can “exist over and above the individual human beings who make it up,” and we need an explanation of how such entities come into existence in the first place.50
Implicit in the name (from corpus or “body”) is an organic metaphor. Something is “organic” if it arises by the nature of things. However, organisation is also a verb—individuals are made into members of a body when the body is “organised.” Group action is impossible without the agency of an individual or group acquiring the capacity to express, in action, the will of the group; these individuals become the “organ” of the group and thus “part of a new power or force,”51 the “organ[s] of the group for the purposes of giving external expression to the corporate will.”52
The history of the idea is found in the medieval ecclesiastical adaptation of the Roman civil law. Its “father” is generally acknowledged to be the Italian jurist Sinibaldus Fliscus, a.k.a. Pope Innocent IV.53 The early history takes us beyond business organisations and into the realm of constitutional theory; the idea was first applied to ecclesiastical orders and geo-political communities. The history reminds us that it is not just joint action and ownership that personality facilitates, but joint responsibility as well. The idea is generally traced to two passages. In one, Innocent propounded the rule that, when a collegium had to deliver an oath, it could do this in the form of an oath sworn by a single person rather than oaths by the all members. Innocent reasoned that “since the College is in corporate matters figured as a person,” it could swear in this corporate mode.54 In the second, the question was raised whether a universitas could be hit by the sanction of excommunication. Here, Innocent paved the way for the restoration of the Roman law distinction between societas (roughly: partnership) and universitas (roughly: corporation), which had been ignored by the medieval glossators; however, he took a step further towards fully-fledged personification:
The idea was stimulated by him that law, by a dogmatic fiction, could for certain legal purposes recognize a separate entity which, though not being a human individual, would, like a human individual, be considered a separate rights and duties bearing unit.55
Maximilian Koessler stresses the casuistic nature of Innocent’s reasoning; the corporation could only be treated as if it were a human being, but actually was no human being, so the fiction could not determine matters in which the legal measure presupposed a human soul.56 Debates about corporate personality are never just about a legal concept but application of the concept in historical circumstances.57
There is a debate in the intellectual history of the corporation about their “fictional” versus “organic” nature.58 We need not get bogged down in its intricacies here; some main points are sufficient.59 In the context of DAOs, the salient questions are (i) whether the law grants or recognises the personality of groups, and (ii) whether any natural or inherent capacities are necessary for legal personality. The latter provides context for the question: “what role are we willing to give algorithmic capacities?” These are not just difficult conceptual problems; legal ideas about the corporation determine and legitimate the bounds of corporate autonomy. The way that we speak about groups is a “verbal construct of the material relations of individuals and collectivities” that informs the power and accountability of wealth held in the corporate form.60
Towards a modern ontology of the corporation
Social reality contains not just human beings but also “artefacts” and “communities.” Artefacts have a material dimension, but their material form does not capture the essence of the existence of artefacts on the social plane. In social reality, artefacts operate by virtue of being collectively recognised or accepted, by human beings, as having certain properties.61 Law is one of the modes in which that recognition can take place, and the effects of recognition (or non-recognition) establish facts that are local to the legal system in question.
There is a disagreement between John Searle and Tony Lawson on this point. Lawson insists that a corporation, to assume a legal form, must either already exist, or be capable of coming into existence, as an emergent social structure pre-existing the act of registration. A corporation is established by “positioning” a community as a legal person.62 “The act of legal incorporation can only be meaningful if there is an antecedent (or, where the association is in the process of being established, prospective) social entity possessing certain properties.”63 Lawson thus concludes that speaking of corporations as “fictions” is unhelpful:
A further unfortunate, or anyway additional misleading, use of terminology is that the position (status) Juridical Person is also variously, if informally, known as Juristic or Artificial or Fictitious Person. Use of the latter term is merely to indicate that although positioned as a legal person the entity in question is not positioned as a natural person. There is no suggestion thereby that any entity positioned as a juridical person is not a real entity. The corporation is such a real entity, and specifically a community. And although it is not (positioned as) a natural person it is positioned as a juridical and so legal person, allowing the community qua corporation access to various positional rights originally intended only for natural persons.64
On Searle’s view, a corporation is constituted purely by speech acts involved in corporate registration, without the need for a parallel social entity.65 A corporation is a “fictitious entity”: “the noun, ‘corporation’, carries both the name of an entity and the existence of the status functions.”66 The idea of a “freestanding” institution of this type was not a part of Searle’s theory as originally presented; there are questions concerning (i) whether its incorporation has been successful67 and (ii) what its incorporation implies for Searle’s social ontological project.68 This point goes to the heart of the metaphysics on which an account of social ontology is based. What keeps the corporation grounded in brute reality? Is a set of documentary traces enough, or do we insist that the concept of the legal person only be used in reference to (pre-legally) existing “real” entities like communities of human beings?
The Searle-Lawson is an iteration of the organic versus fiction debate. My own leanings are fictionalist, but Lawson’s grounding reminds us of the normative implications. We could grant a statue (for example) legal personality, but there would be little purpose in doing so because a statue cannot act. It is legally inert, it is not a noun that can bear a relation to verbs like “sell,” “own,” “be liable.” If we grant a statute legal personality because it is represented by a human being, it is the human being, not the statute, that is actually being personified. DAOs represent a new twist in this debate: Could we recognise the personality of a statue “represented” by an algorithm rather than a human guardian? Assuming we could, should we? What about an ancient tree, or river, or ecosystem?
There is more convergence between the positions than first meets the eye. Both accept that the multilateral, social act of “positioning” (for Searle: “recognising or accepting”) X as a corporation explains why X counts as a corporation (whatever kind of entity X “actually” is). Perhaps it comes down to how we should understand “legal fictions.” As Frederick Hallis writes, “the conception of corporate personality expresses a juristic reality, that is, a reality from the juristic point of view, nothing more and nothing less.”69 Legal facts of this type are, for me, what Andrei Marmor calls “fiction facts”:
[Law and fiction both] exhibit features that are generally shared by expressive artifacts. [They] belong to a type of intangible artifacts, created by communicative means, giving rise to closed prefix contexts in which truths in that context are constituted by performative speech acts.70
Law—like computer science—is a domain in which “saying so makes it so.”71 There is “fiction” in the very act of “positioning” a community as a corporation. It super-adds a legal fact to the social fact of Lawson’s community. Treating a community as an entity capable of collective action is an “artifice,” not just the recognition of pre-existing facts. Perhaps the law should only position entities capable of action as “persons,” though I would not exclude the possibility of doing so on ontological grounds.
To bring this discussion back to DAOs, it would appear that technology has provided the means to organise “communities” in new ways. These communities are unique in a number of respects; they may be more geographically diffuse, more impersonal (even pseudonymous and unknown to each other), they may interact only in an online environment, their joint action may be constituted by the “actions” of algorithmic “agents.”72 All this rather sharpens than obviates the need to engage with basic ontological questions about group personality—and with basic questions of political economy concerning the relationship between private autonomy, state concession, public purposes, and the responsibility imposed on agglomerations of wealth.
Debates about personality are also about the consequences that attach to actions by group organs. These consequences are never solely a matter of logical entailment. Legal personality is not something that emerged in the context of individuals and was then carried over to groups; the attribution of legal personality to an individual is just as “institutional” as its attribution to a group. Moreover, the attribution of legal personality to some groups outdates its attribution to some individuals; it was only in the late 19th century that English law granted women full contractual capacity, and just a generation earlier chattel slavery was commonplace. The demise of slavery in the capitalist world “overlapped with the extension of legal personality to private business firms in the middle decades of the nineteenth century, but the attribution of corporate status to charter companies and utilities [had been] well established in the early modern period.”74
In 2016, “The DAO” was reported as a “venture fund with plenty of virtual capital, but no capitalist.”75 Smart contracts offer the opportunity for autonomously operating software to oversee, execute, and maintain interacting agreements “not as an intermediary for individuals or companies, but rather, in a functionally meaningful sense, in its own right.”76 A self-owning corporation might have flesh-and-blood organs who work for a fictive “body.”77 DAOs, by way of contrast, have members (human token-holders) but no conventional (human) organs. De Filippi and Wright give the example of a transportation business, like Uber, structured as a DAO in which the governing smart contracts act as an agent serving the interests of the DAOs “shareholders”:
All of the activity on the network—including the matching of drivers and riders and the collection of fees—would be managed exclusively by code. In effect, the DAO would act as a central point of reference to help users coordinate with drivers. Just like the drivers who work for Uber today, the drivers participating in this network would resemble employees or independent contractors who are hired or contracted by the DAO to provide their services to users looking for rides… DAOs [thus] represent a threat of [an] emerging phenomenon, where code-based systems are increasingly used to manage the activity of humans and machines.78
The human layer of corporate action is reduced and obscured; the algorithm would be the agency by which the “group-mind seeks realisation in the external world.”79 The range of these actions is not necessarily confined to “cyberspace,” either.80 The company that brought us The DAO was an “Internet of Things” start-up, named after an automated lock. The ultimate aim is not just to automate online transactions, but to enforce Ethereum smart contracts into the physical world.81
From the perspective of a disruptive technologist, a DAO lacks human organs, and this obviates the need for corporate governance norms. Viewed from the perspective of legal theory, however, it would seem to entail either that (i) the “actions” of smart contracts are to be attributed to humans, in which case the smart contracts are merely muddying the waters, or (ii) that some actions by smart contracts will be acts-in-the-law (and/or acts with legal consequences) in their own right, or (iii) that a DAO has human organs, but they are poorly identified and sub-optimally regulated. All of these options speak to the need for further scrutiny.
Corporate governance in the “bazaar economy”
Corporate personality is not just facultative, but also regulative. Legal recognition of an entity makes it a known quantity within the world of law. It makes a set of internal financial records; for example, a “register of members” impressed with a public character that is subject to legal directives. This explains the dynamic tension between the legal system and the market it regulates. Market participants devise patterns of interaction, often expressly to avoid regulation. The law responds—not only through prohibition but also by accommodation, in which the new pattern is brought into the fold of legally cognisable activity. Regulation is a quid pro quo of vindication.
Wood’s expansive vision of the “bazaar economy,” conversely, assumes that novel ICT can and should remove activity from the domain of conventional law. Crucially, he sees “no entity, legal or otherwise” subject to regulation. Such views rest on immature ideas about the interaction of law and parallel social (and socio-technical) domains and presuppose a conception of individual autonomy that requires a counter-factual level of equality between transacting parties.
When we consider the problems of the platform and “gig” economy,82 it seems questionable whether a DAO-based platform economy is desirable at all. As J.J. Kroncke argues, there is no clear evidence that the reduction of job security protections leads to economic revitalisation. The empirics on job tenure, firm productivity, and general economic growth have become more obscure as the methods and data of labour market economics have improved.83 Job insecurity rather tears at the social fabric on which the economy depends:
While it may seem that the productive energies of a revitalized labor market are ever-waiting to materialize for potential reformers, the truth is that work across the globe is becoming precarious enough… We are already witnessing the dislocations of this secular trend in any number of social contexts, and the more serious question should be how to create a global legal equilibrium that matches the organic realities of human capital formation rather than the digital velocity of financial capital.84
More fundamentally, the notion of a bazaar for individual contractors assumes a market order that exists outside of law and politics, excluding ex hypothesi questions about how (re)structuring the market itself conditions outcomes. The market is seen as a spontaneous phenomenon that fills the space left to it by law, and the promise of cyberspace is a new frontier in which conventional law does not (yet) reach. Such aspirations presuppose a state of nature in which “natural rights” (such as property rights and the inviolability of the human person) are taken as given.85 Technology cannot supply the necessary background alone; Hobbes reminds us that without a “civil state” there is no meaningful way to say that B’s private keys are “hers” at all.86
What we import into our background informs the market that results, but these assumptions are usually tacit. As J.K. Madoud argues, markets are neither “perfect” nor “imperfect,” but are the outcomes of complex bundles of entitlements that determine the nature of power struggles.87 The “free market” is a regulatory system, albeit one that reduces collective control of owners of capital through expansive property rights. Even the assumption against unfree labour is an aspect of this background, e.g. the assumption that contractual default by my parents cannot lead to the loss of “property rights” in my labour in favour of a creditor. “Distributional struggles,” argues Madoud, “always operate under the background laws that determine property, contracts, and torts,” and “private actions involving one’s own property will inevitably have social consequences.”88
In short, the legal institutions against which markets operate shape the political economy that results; DAOs do not change this basic fact, though they do open up a set of possible future worlds from the emancipatory to the dystopian. Following the “The DAO” incident, Wood’s co-founder Vitalik Buterin was sanguine:
Immutability by itself is pretty worthless if all that you’re making immutable is running off a cliff. In order for principles to be valuable, they have to serve some kind of social purpose… [W]e’ve clearly realized that there needs to be a lot more supporting infrastructure in terms of reducing the risk of these kinds of faults and coming up with ways of resolving these faults without going down into the base layer.89
The question is how to connect the processes of the “base layer” to viable “social purposes,” and whether the law forms part of the “supporting infrastructure” in that effort. Kaal’s suggestion for DAO governance norms could be read in this light. However, as Kaal argues, the ability of DAOs to create “significant decentralised equivalents of [conventional] corporate structures” is “contingent on workable governance solutions for DAOs,” and the industry has only just begun to engage seriously with the development of solutions.90 Existing blockchain governance still consists, for the most part, of forking a given chain. In my view, we must remember and take seriously the need for “off-chain” and hybrid governance mechanisms.
Where to from here?
Beyond efficiency, problems with the corporation include opportunism by corporate managers, financialisation of once-productive businesses, exploitation of workers, casualisation, job-loss through automation, degradation of the environment, and so forth. It is quite plausible that technology will provide novel tools to address these dysfunctions, though it will not make them vanish. If we wish to change the way that groups and capital agglomerate to make capitalism more efficient, less exploitative, less prone to opportunism, or more sensitive to interests such as environmental protection, we should not just abandon the legal levers. Ideas for reform might include common calling and monopoly doctrines (whereby private property rights are impressed with public duty),91 the doctrine of corporate ultra vires (i.e., limiting corporations’ specific purposes),92 a presumption against immortality, or rejecting the straightforward equation of corporate persons with natural persons (whereby corporations benefit from basic rights such as the freedom of political speech).93 However, such areas for reform appear only if we take seriously the legal concept of the corporation, and adopt a richer view of law and political economy.
Confronting the social aspect of economic coordination
As David Westbrook explains, agency law addresses concerns about the institution of the corporation by reference to contracts between autonomous individuals; this grounds the corporation jurisprudentially, even if we sometimes feel uneasy.94 This lens of enquiry may not be appropriate.95 Westbrook also points to the origins of agency law in the law of master and servant. Probing deeper, Westbrook asks why the legal profession is “sufficiently uncomfortable” with the figure of the corporation, such that we feel the need to “ground” it in relations of agency between individuals. The answer is that modern sensibilities find the concept of status distasteful. We have modernised agency to be a concept based on consent, and therefore a notional equality of the parties, but this requires the “creative redescription” of ancient relationships: “Clever writing aside, agent and principal are not normally thought of in terms of equality. Nor are employer and employee presumed to be peers.”96 Grounding the corporation in contracts between individuals amounts to an “intellectual avoidance of the social”; modern agency law understands relations between corporate stakeholders in terms of contract rather than obligations imposed by society as an attribute of status,97 but status-based obligations play a more important role in corporate governance law than contractual obligations (e.g. directors’ duties). We have painted the firm as essentially private, without public elements, as having liberties and prerogatives deriving from those of its individual incorporators but nothing in the way of social purpose implied by the concession of legal recognition. “Under such conceptual conditions,” Westbrook argues, “building a more sensible capitalism is hard to imagine.”98
Moreover, corporate relations do not actually conform to the requirements of modern agency law, and agency law itself cannot really be founded on independent consent. The problems with status and hierarchy found in the corporation are replicated in, rather than solved by, the turn to agency law. While agency law provides a “handy language for articulating much of corporate life,” it “does not promise a more republican, less authoritarian, theory of the firm.”99
The same is true of DAOs. Indeed, the error would only seem to be compounded; the inherent inequalities and asymmetries of financial capitalism will not melt away. If the agency explanation for the nature of the corporation, and the business firm more generally, is not compelling, and if we are concerned with at best partially consensual social relations, we must look elsewhere. To ground our theory of DAOs, we must start with a broader set of questions, including the nature of commercial institutions, how they should be regulated, what rights they should have, what relationship they should bear to the state, and what justifies their internal power and governance structures. A rigorous theory of the firm would accept that the corporation’s legal personality is derived from state corporation law, with a strong admixture of tradition that recognizes and enforces a trust-like relationship between the board, the company, and its shareholders. “The state—better, the social—stands at the beginning of corporate life, and, as we shall see, makes its interactions plausible.”100 Fiduciary concepts, in particular, represent the law’s response to the agency costs problem, but have been neglected in the economics literature.
These questions are hardly new. Some years before Coase’s seminal contribution, A.A. Berle and Gardiner Means published a study of business corporations and property rights focussed on the separation of ownership (shareholders) and control (managers), emphasising the transformation of company shares into fungible objects of property rights traded on impersonal secondary markets, which allowed insiders to direct the corporation in their own interest.101 This attenuated the justification of corporate actions in private property rights, and opened space for progressive arguments about corporate governance in the New Deal era that became the foundation of modern “corporate governance.”102 Berle and Means observed that the corporation was a means to aggregate the wealth of vast numbers of individuals and channel it in a “unified direction”; “[t]he power attendant upon such concentration,” they observed, “has brought forth princes of industry, whose position in the community [was] yet to be defined.”103
The rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with the modern state—economic power versus political power, each strong in its own field. The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation.104
The notion that code can be used to avoid law thus appears as a new chapter in a longer history. Hobbes compared “lesser Commonwealths” to parasites.105 Westbrook asks: “As between a political organization of society and an economic organization of society which will be the dominant form?”106 We should ask: “What role do DAOs play in the struggle?” In my view, we should not hope too hard for a workforce of independent contractors employed by bodies without organs, whose members are loosely dispersed across the globe. Continuing the trend towards casualisation and shifting more of the burden of economic risk onto workers and the state, this might end up as something more like an “autonomous personification of industrial capital” than a “bazaar” of equal, independent traders.107
We often focus on the micro-transactional aspects of new financial technology, without recognising its systemic implications. Yet the affordances of “Fintech” threaten, in important ways, to undermine the tenets of the New Deal established in the 1930s, with which the modern doctrines of corporate law (and the law of corporate governance) are bound up.108 In the 1930s, the scope of the business enterprise was critical to issues like labour unionisation, workplace accident insurance, and social insurance schemes.109 These issues are, again, all topical in the age of automation and casualisation, and it is perhaps no accident that the “blockchain revolution” started in response to financial crisis.110 To the extent that DAOs present a new way of organising business associations, they hold the potential to unsettle long-standing assumptions about the organisation of the productive and financial economy, and will likely follow existing trends in this direction.
This Article has surveyed approaches to the study of DAOs and stressed the importance of grounding analyses in traditional legal categories. I have not argued conclusively for the recognition or non-recognition of DAOs as corporations. While I think DAOs could be given legal personality on “legal-technical” grounds, and while the recognition of DAOs as legal persons could follow logically from arguments about their agentive functionalities, the decision whether they should be also implicates a number of “legal-political” arguments that need to be interrogated. There are, I think, good reasons for resisting the notion that DAOs should be treated by any legal system as legal persons. However, we should take the possibility seriously, because legal personality might also be a vector for regulation and might be preferable to allowing efficacious quasi-corporate entities to operate de facto outside the legal system. This could provide a response to the rise of software-encoded rules that some innovators envisage as a partial or wholesale displacement of state law. In other words, a degree of concession to the realities of the market might be the price legal systems pay to bring these new entities into their regulatory universe. In any event, DAOs will be one arena in which a larger set of concerns and interests compete.