UAE Developing a Legal Form for Incorporating DAOs

Two weeks ago, Abu Dhabi Global Market (ADGM) published a request for comments on a draft of a legal framework for incorporating Decentralized Autonomous Organizations (DAOs), inviting DAOs and blockchain businesses to submit their comments and remarks on the draft, to take under consideration before enacting the proposed framework. The window to submit comments is open until May the 12th.

Interest in DAO incorporation has been mounting of late, as DAOs have grown more numerous and diverse than ever. More blockchain projects are adopting a DAO structure for their governance, whether we are talking about DeFi protocols like Uniswap or Metaverse platforms like Decentraland. Incorporating these DAOs is essential to limit their members’ liability, allow them to pay taxes, contract and purchase real-world assets.

The Regulatory Authority in UAE chose to focus on the legal form of Foundations, with certain modifications that make it suitable for DAOs. The proposed framework suggests every DAO establishes a foundation that has a legal personality, and that ensures the legality of DAO activities and proper application of DAO’s bylaws. The foundation legal form is particularly suitable for Protocol DAOs, since it allows the members of the foundations to remain anonymous unless they hold 25% or more of all DAO tokens. At the same time, foundations have limited and pre-defined authorities, and therefore they do not go against the principle of decentralization.

The UAE is becoming one of the first nations in the world to develop legal form for DAOs, knowing that some American states, like Wyoming and Colorado, have taken similar steps before, but these efforts remain local and on a state level.

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