Ellen Naudts
- 17 October 2023
- OCCASIONAL PAPER SERIES - No. 331Details
- Abstract
- Despite the crypto-market crash in the spring of 2022 and the collapse of FTX in November 2022, decentralised finance (DeFi) proponents are still predicting that DeFi may soon go mainstream. As well as the increasing involvement of regulated financial institutions in the DeFi area, the incipient presence of regulatory, supervisory and oversight frameworks may lead to more mainstream acceptance of DeFi. Many DeFi projects are structured in the form of a decentralised autonomous organisation (DAO), a virtual organisation built and run on code and blockchain technology. As this new DAO corporate structure has benefits appropriate for the era of digitalisation and decentralisation, the number of DAOs is growing. However, most countries around the globe do not yet have in place a specific legal regime for DAOs. Until now, DAOs have been operating outside of regulatory financial frameworks, even though they may perform functions that are similar to regulated financial institutions or market infrastructures. The legal characterisation of DAOs depends on national laws that may or may not apply, depending on how the DAO itself is actually set up and on court judgements. This paper introduces the DAO structure and how it relates to other methods of organisation in finance. The paper lists use cases and describes the benefits and drawbacks of the DAO structure, taking a closer look at (inter)national regulatory frameworks, guidelines and recommendations in order to discuss whether, how and to what extent DAOs might comply. A policy position on the desirability and conditions under which DAOs could bring efficient, safe and stable innovations to the financial sector depends on the specificities of the individual DAOs, the potential applicable regulatory frameworks and the continuously evolving technical developments, as well as (inter)national guidelines and recommendations. This paper proposes that the establishment of regulatory frameworks on crypto-assets and crypto-asset s
- JEL Code
- F38 : International Economics→International Finance→International Financial Policy: Financial Transactions Tax; Capital Controls
F39 : International Economics→International Finance→Other
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
K22 : Law and Economics→Regulation and Business Law→Business and Securities Law
L22 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Organization and Market Structure
L31 : Industrial Organization→Nonprofit Organizations and Public Enterprise→Nonprofit Institutions, NGOs