Cryptocurrency may be new, but it has yet to fit into the existing legal box.
Several people came together to start a company using a cryptocurrency protocol called bZx, which should be super secure, or as they say, every cryptocurrency depositor “never needs to worry.” should … or [anyone] theft [their] Medium.” Of course, that’s exactly what happened: Using a simple email phishing scam, hackers were able to break into one of the bZx developer’s accounts and obtain a passphrase, allowing the hackers to steal about $55 million worth of cryptocurrency That in itself isn’t remarkable as hardly a week goes by that I don’t read an article or two about losing millions by hacking cryptocurrency accounts, but let’s move on because at some point it’s going to be very interesting.
The bZx folks have not recovered the damages, so some depositors have filed a class action lawsuit in the US District Court for the Southern District of California. But who to sue? The bZk protocol is not a real person or even a recognized legal entity, but a . is described as decentralized autonomous organizationknown as “DAO” and what can be described as a financial mess in which ultimately nobody takes ultimate responsibility – a kind of legal veil, if you want to put it that way. .
Luckily for these depositors, the law isn’t thinking in terms of financial chaos or legal fog, but rather is working to separate things into separate coves. Everything in the legal world goes into one pigeon or the other; If something doesn’t seem to fit into a particular box, especially because it’s something new, the law works to stuff it into a standard pigeon anyway, like a different pigeon with a sign above it. Can be represented as something that says “everything else belongs here.”
When it comes to corporate organizations, this standard pigeon is the general partnership. If something is a business organization but not a corporation, limited liability company, limited partnership, trust (or any of several types of foreign corporations), then the law looks for a general partnership. Or, back to our sign, everything else goes into the collective dove.
For those connected to them, general participation is bad news as everyone connected to the entity is treated as one. Complementary, and the general partners are generally liable for the debts and liabilities of the company. Contrast this with corporations, where the company is liable but the shareholders are not. Compare this to limited liability companies, where the company is itself liable but not a member. It is even compared to a limited partnership, in which it is not the limited partners who are liable, but the company itself and only the general partners. with an open trading company All Legally responsible for the debts and liabilities of the companies.
Thus, depositors claim that the decentralized autonomous organization of bZx is legally just an open trading company. This means anyone who was involved in the bZx DAO could be held liable. When the depositors sued, they sued all participants in the bZx protocol in relation to the hacking damages – including only investors who would otherwise have been protected from liability if the bZg group had been organized as a corporation, limited partnership or GmbH.
general liability The general partners of a general partnership means that each of them bears full liability. If the court finds that they formed a general partnership (which is defined by a very lax standard) and finds that a particular defendant is a general partner, that defendant bears disrespectful liability. will be on the hook for the full amount of the defendant’s own act or omission in relation to the hacking incident. To say that this is a brutal result would be correct, but that’s how the Open Companies Act works.
What happened to the DAO is what happened to the law for centuries: the law moves very slowly, almost comically, in relation to the technology moving too fast. Therefore, technology often outperforms the law in its development, and the courts then have to shove everything that technology has done into one of the legal drawers out there until the law (new laws) is passed by the legislature. This leads to the assertion that a very new and refined form of organization in the form of a DAO is to be regarded as one of the oldest legal forms in the form of a general partnership.
is that fair? At least legally it doesn’t matter. The law only cares about how something is treated under today’s law, and things that seem to require the development of new laws are again left to the legislature. That being said, it seems to me that these DAOs should be organized as Series LLCs, but we’ll leave that for another day. What is certain is that the DAOs pose a clear legal threat to themselves and anyone connected to them, and those with something to lose should stay away from them completely for now. Some clever lawyers will have to adapt the DAO to the existing legal framework, otherwise the likely outcome in this case (each liable as general partner) plays out with each DAO in question, or at least their participants in the subject, is subject to the US Right.
Kudos to Johnny Lyle for finally getting me to write about this.
complaint Sarkuni vs bZx DAO, Case #22-CV-618, Dr. 1 (SDCL., filed May 2, 2022).