Unchained - Are DAOs Strong Enough to Survive the Regulators? - Ep. 479

Episode Date: April 11, 2023

How can decentralized autonomous organizations (DAOs) be more resilient? Gabriel Shapiro, general counsel at Delphi Labs, and Fatemeh Fannizadeh, lawyer and researcher at Geneva-legal.ch, survey the landscape and offer their insights on what will fuel the next wave of DAO innovation. Are new rules from U.S. states like Wyoming and Utah a boon for DAO creation? Or will the proceedings against Ooki DAO by U.S. regulators cast a pall on this emerging segment of the Web3 world? Show highlights: how Gabriel and Fatemeh determine whether something is actually a DAO the pressing legal issues around DAO formation where the liabilities lie in these types of organizations Delphi Labs’ new “borg” concept and the problems it aims to solve what jurisdictions are more appropriate for different DAOs the nuances of Wyoming’s DAO LLC law Utah’s Introduction of LLDs – limited liability DAOs – and why it is innovative  why the CFTC filed a lawsuit against Ooki DAO whether governance token holders are liable for the DAO’s actions how the Ooki lawsuit will impact how DAOs structure their activities in the future what happened in the MakerDAO case and its implications why Fatemeh and Gabriel disagree on whether the Mango DAO’s agreement to not pursue actions against Avi Eisenberg was legally binding Thank you to our sponsors! Crypto.com Halborn Guests: Gabriel Shapiro, general counsel at Delphi Labs Previous appearances on Unchained:  What Does Mango Markets Exploiter Avi Eisenberg’s Arrest in Puerto Rico Mean for DeFi?  Fatemeh Fannizadeh, lawyer and researcher at Geneva-legal.ch Lawmakers In New Hampshire And Utah Recognize DAOs As Legal Persons Links MakerDAO: CoinDesk: Crypto Investors' $28M ‘Black Thursday’ Lawsuit Against DeFi Giant Maker Dismissed by US Judge Mango Markets: CoinDesk: Legal Expert Says Mango Markets Exploit Case Is Wake-Up Call for DAOs Avi Eisenberg Detained Unlike SBF As Mango Labs Is Denied Injunction But TRO to March 15 Unchained:  The Mango Markets Attacker on Whether His 'Trade' Was Ethical or Not CFTC Charges Mango Markets Exploiter With Market Manipulation Mango Markets Exploiter Arrested on Market Manipulation Charges Tornado Cash Unchained: The Chopping Block: Did OFAC Overstep by Sanctioning Tornado Cash? Given the Sanctions on Tornado Cash, Is Ethereum Censorship Resistant? Tornado Cash Sanctioned. Did the Government Overstep Its Bounds? Ooki DAO: Unchained: Why the Ooki DAO Case Could Hurt Participation in DAOs CoinDesk: Interpreting the CFTC’s Lawsuit Against Ooki DAO Wyoming law Legal Nodes: Wyoming LLC as a DAO Legal Wrapper: What You Need to Know Utah The National Law Review: Utah Passes Innovative DAO Legislation Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first mainstream reader-porter to cover cryptocurrency full-time. This is the April 11, 2023 episode of Unchained. Web3 projects lost nearly $4 billion of crypto assets in 2022, but nothing is more expensive than losing trust. secure your company with Hallborn's best-in-class security advisory solutions. Visit halborn.com for more. Buy, earn, and spend crypto on the crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first seven days. Download the crypto.com app and get $25 with the code Laura. Link in the description.

Today's topic is legal developments around Dow's. Here to discuss are Gabriel Shapiro, General Counsel at Delphi Lab, and Fatemei Fonizadei, crypto lawyer and researcher. Welcome, Gabriel, and Fateme. Thank you. Good to be here. So before we dive into the meat of this topic,

which is going to be super interesting, let's actually just define some of these terms because Dow is one of those words that's been discussed a lot in crypto for many, many years, but it went kind of like from theoretical concept to reality, and yet there's many permutations. different DAOs. So now that we've seen all the different kinds of organizations that people are

calling DAOs, how would you each define DAW? So I would define DAO as a decentralized, autonomous organization, which may sound trite because that is the acronym, but I think a large amount of the organizations currently called DAO's either are not decentralized or are not autonomous. So what is decentralized? Decentralized means that if there is discretionary authority of some kind decisions to be made, that the power to make those decisions is very widely dispersed among, in my opinion, which should be a potentially anonymous global set of people, right? They may vote through tokens or they may vote, you know, I consider Bitcoin to be a Dow in the end.

The members of the Bitcoin Dow vote with their hash power, but more often, and it's voting tokens. And then it has to be autonomous. And autonomous means that it is resistant to extrinsic exercises of authority. Right. So we we decentralize the intrinsic power. We get rid of the extrinsic power. So that means it shouldn't depend on any particular company. It shouldn't depend on any specific group of people. It shouldn't depend on, for example, again, in my opinion, a state charter, a state license, right? And then it's it's an organization, meaning that it's some type of group of people who have gotten together to do something, whether it's to set the rules for an on-chain protocol, set the rules for an entire blockchain

system, you know, whatever it might be, but usually it's technological and blockchain oriented. And one question before we turn to Fateme, because just when you were talking about Autonomous and you were saying it's like impervious to external changes or forces or something like that. I forget the wording that you used. But basically that doesn't necessarily mean because like so to most people, the word autonomous would mean like you don't need to do anything and it just runs. But people need to vote. Like it's a very active sort of thing.

But you're just saying only the token holders of that Dow can act in it. And that's what makes it. That's right. Yeah. You try obviously with a lot of these things. We want to minimize the need to make decisions as much as possible, right? And that is what is autonomous. It's like a robot.

But with most of the, if it was just that, if it was purely that, then it would just be an autonomous organization, right? It would basically be a robot. The reason why it also needs to be decentralized is because there is still some flexibility and decision making and mutability that's involved. And so whenever you have that, that residual discretion, you want to decentralize. centralize that as much as possible. Okay. And Fatime, what about you? How do you define Dow?

I like Gabe's definition. I think that it is maybe an ideal definition, the way Gabe you just mentioned, presented it. I feel like I would adopt an approach that is a bit more general and broad to encompass more of the realities that we have now on change. So I would say that DAOs are just groups of people who are coordinating, organizing, and governing anything. So either that could be the treasury, a protocol, anything else that may be governed on chain. And I would simply define this as a DAO. So it's kind of the other extreme because I don't necessarily include any minimum level of decentralization, although it should be technically decentralized, so token-based governance,

for instance, or potentially be decentralized. But nowadays, we don't have the tools to assess properly whether or not Dow is actually effectively decentralized or not. So I wouldn't even venture into these considerations. So is there like some threshold at which you guys would say, like something is centralized or decentralized? I think that what is centralized, it could be pretty obvious. So if there is like a corporation that makes 100% of the decision or can overrule has veto rights over what the Dow governance decides, then I would deem that to be centralized.

If there's one person or a very small centralized group of person making decisions and not being accountable to any form of token holders, for instance, I would deem that to be centralized. But other than this, I think it's an open question. Yeah, I would say that if a single person or a group of extrinsically affiliated persons has more than a majority of the means of determining consensus or a majority or more, like the requisite minimum itself to determine consensus on a cosmos chain that might be any group or person that holds more than a third of stake within the active validator set,

in some, you know, it might be like 51 percent. That's like it's called a 51 percent attack in Bitcoin. But whatever that number is for the requisite system, if it's controlled by a single person or group of extrinsically affiliated persons, then I would say it is centralized. So at this point, you know, like I was saying earlier, we have a number of different Dows that have come into existence and they're all taking different shapes and forms. And we're going to dive into some of the really specific cases. But I just wanted to to hear like from an overview perspective, what are the main issues that you feel need to be resolved about DAOs right now when it comes to legal issues?

Well, there are many. And I'll try not to muddle it with other issues, you know, that DAWS might get pulled into you. One is just what type of legal thing is a DAO, right? Some people, particularly regulators and class action litigators are arguing that Dow is simply a partnership like any other, right? Partnership is defined as an agreement to co-own assets in the context of sharing profits and losses related to them, right? That's one potential, but there are, you know, countervailing considerations for some Dow's. Like, you know, for example, some of them are highly rivalrous. In fact, if you consider Bitcoin to be a Dow, and that was actually the first system that was called a Dow in the literature, it was called a DAC, a Decentralized Autonomous Corporation, but same thing, basically. If you consider that a Dow, well, the miners comprise that Dow, and the miners are highly rivalrous with one another, just because one, typically in a partnership, a rising tide lifts all boats, so to speak.

But in Bitcoin, a particular minor doing really, really well can quite adversely affect the other miners. So is it really a partnership? I don't know, right? It's debatable. But there's no clear legal classification and it might differ depending on what Dow you're looking at. Another issue is around who comprises a Dow, right? Because in a traditional partnership, for example, a pure common law partnership, every time a new partner is added or a partner leaves, the partnership is dissolved and it's now a new partnership, right?

So you would not be able to sue the old people who left for something that happens afterwards. But for example, in the CFTC's sued against Uki Dow, they seem to be defining that Dow as anyone who at any point ever voted in the Dow on anything, right? So that kind of gives you a flavor, I think, but there are many, many unanswered questions. I think it all goes down to a question of liability, basically, and this is a very practical view. If I want to be part of a DAO or I want to build a DAO, the question that I will be faced with, and also if I want to participate in the governance of one, is whether or not I'm going to be held liable at any point because of the DAO's activities, for instance, because of the DAO's lack of certain activities. So, for instance, that could be like if the DAO is a defy DAO, can I be made liable for the fact that it is conducting its activity without being registered in a jurisdiction, for instance.

Will I be liable if one day there is a problem with the software and I somehow participated in the governance of that software? Will I be liable if a jurisdiction, all of a sudden, decide that this DAO needed to pay tax in that jurisdiction and obviously did not do that? So there are so many different array of possible liabilities that are right now unclear. The way that most DAO's operate currently is that they either try to mitigate these liabilities through various means that are untested and oftentimes just maybe comforts Dow participants a little bit, but without giving any form of guarantees, or basically we have to find ways to either have risk tolerance towards these issues.

But there is no certainty whatsoever. What are the possible liabilities faced by a participant? I think this is something that needs to be clarified also just for peace of mind. Yeah, while you were talking and I was imagining, like, you know, what if a Dow token holder would be like, liable if they voted to approve an upgrade and then that upgrade resulted in a hack where everybody lost their money. Then what? So yeah. Anyway, so again, we're going to dive into some details of things. However, before we do that, I do want to talk about a new concept that Delphi

Labs is unveiling. And Gabe, you guys, great with the language here. You call them cybernetic organizations and then you shorten that to cyborg, which is, I guess, I don't know, somehow very in line with most crypto nomenclature. So what are you, you know, what are these exactly? What are boards? Yeah. So the idea here is that, look, there are kind of two steps you can take to the issues that we've been discussing so far and that we'll further discuss, which is there's a lot of risks around Dow's, a lot of uncertainties around Dow's. One is to essentially, there are kind of two ways to risk off, so to speak. One is essentially, look, at the end of the day, these are just businesses like any other. Let's just create entities. If we need to create a new type of entity

under law like a Wyoming Dow LLC, let's do that. And let's just make these Dow's companies. And then everyone who participates in them will be like a member or a shareholder or something in that company. They'll get the typical limited liability package. They can do anything they want, just like people do with any other business, and they can have at least somewhat more reasonable assurances about what their risks are associated with that, and so on. To me, however, that takes away the essence of Dow's, right, because it's no longer autonomous. It's now a state-defined entity, right? And you have to follow the specific rules that that statue has laid out, or else you lose the limited liability. And, you know, there can also be theories of piercing the corporate veil.

limited liability is never ironclad, even if you have an entity. What I actually think is better is let's stick to the real concept of DAOs, which is that they are basically robots with like a decentralized base of people who can give them very, very limited type of flexibility, right? And let's take all the business functions, all the management functions. If you're looking at something like Olympus Dow, which is essentially a very complicated on-chain hedge fund because it funded all these other protocols, and took stakes in them and it sold tokens and then bonded them and it has this protocol-owned liquidity.

Or if you take Dow's that like directly try to pay higher workers, like hire full-time salaried workers to develop the protocol, all these things that we think of as businesses that are highly off-chain that involve legal agreements that involve a lot of discretion and potentially regulatory licenses, take them and put them back into entities. Put those into entities, right? Not the entire Dow. But the way you can do that is you don't have to go all the way to the extreme of just saying, okay, their entities like the Ethereum Foundation, for example, is basically a black box to us.

Like the Eath holders have no influence really, except maybe social pressure, but no legal influence and certainly no blockchain-based power over how the Ethereum Foundation spends its money, exactly how it governs itself, et cetera. Let's take advantage of this brilliant on-chain infrastructure that we've built, and we can create new legal blockchain hybrids, cybernetically enhanced legal entities, borgs, right? Like the Borg and Star Trek where John Luke Picard gets like the monocle and he's been assimilated, right? So these entities can be sort of merged with a Dow or with other types of on-chain constituencies without being mere agents of them but being somewhat accountable to them. So just for example, one thing you could do is, let's just say, like, very popular right now is like token to token swaps among DAOs, right? They want to get synergies.

They want to get value alignment. Like, you know, like we work on a protocol called Mars protocol that's on a blockchain called osmosis. Wouldn't it be great if the Osmosis Dow owned a bunch of Mars tokens and the Mars Dow owned a bunch of Osmo tokens? And, you know, we're all friends in Kumbaya. But to me, that's very regulatory risky. but what you could do is I could set up an entity that's adjacent to the Mars Dow, right? And that entity could own a bunch of Osmo. We need to make clear to Dow holders that they're not the owners of this Osmo.

They're not going to get profits from it or dividends from it. And they're not going to decide kind of everything about it. But one thing I think we could do, for example, is we could commit in the governing documents of that entity. We could publish it. We could say, we will always keep that Osmo governed by a multisig. and everyone who's on that multi-sig will be directors of this company. Furthermore, we will always configure that multi-sig in a way where the Mars Dow can vote those osmo tokens on osmosis-dou proposals, right?

That's not a really a regulated activity. That's not a financial thing. It's not distributing profits. And I think we can do that, right? So it's a direct on-chain control that the Mars Dow has over these tokens, even though it doesn't like own these tokens, right? You could take, for example, emergency multisigs is another application. Right now, a lot of protocols have these multisigs that can halt the protocol in the event of an emergency,

or they can change parameters in an emergency, whatever it is, because there's security risk and we're not fully confident in the code. But the problem is if you have the power to halt the code in an emergency, the chain doesn't know what's an emergency and what's not, right? So you also have the power to halt the code at any point, right? That's really bad. So in my opinion, the way to plug that hole is put that multi-sig in an entity and having the charter documents for that entity, we will only use this power in an emergency. And by the way, if we abuse it, if you hold 5%, 10%, whatever it is of either the deposits in the protocol or the Dow governance tokens, and you think that we violated the rules of this entity, you can. sue the entity and force it to come into compliance, right? So things like that, I think, can create a bridge between the off-chain world and these on-chain robots that still is Web3,

still is accountable and still is innovative in its way. It's not like it's just going purely back to Tradfai, but that has a more, it leaves the Dow concept pure and has these adjacent legal hybrids being something other than a Dow. Interesting. So it's almost like there's the part that's like truly Dow and then there's these like satellites that are more like Dow slash legal entity and then but sometimes they can be at odds with each other if like one perceives that the other didn't kind of follow through on its word exactly and so there needs to be accountability mechanisms right now there's a lot of trust in people who have these kinds of authorities over the protocol but the accountability is lacking and essentially it's just reputational

damage is the only thing right to me as a lawyer that's not enough and I don't think that's really the crypto ethos. We have an ethos of not your keys, not your coins. The off-chain equivalent of that is there needs to be a damn contract written down in words that's legally enforceable, right? So I'm trying to reduce the trust on the off-chain layer as well. And Fateme, what is your reaction to this proposal? I'm curious. It's very new. Gabe just sent this to me. I was like, this looks interesting. But what are your thoughts? I find it pretty interesting to also compartmentalize the risk in such ways by having smaller entities. So one of my biggest criticism of wrapping an entire DAI in one entity is that it creates one single centralized

point of failure. So if the treasury of the entire DAO is governed by one entity, then that entity has to respond to one jurisdiction and may be forced to basically, for instance, just sees the treasury or have other actions over the treasury that is not aligned with the DAO governance, So I feel that having these satellite entities instead of one is definitely positive. I'm wondering how, I mean, this basically deals with one aspect of the issue, which would be accountability of decentralized actors, for instance, multisig signers. But what about the liability of the Dow participants? Is there a way within this framework of Borgs that this risk can be mitigated? Yeah, I think there are ways it can be mitigated.

Number one, I think once you sort of do this exercise of putting all the businesses and stuff into entities, I think you've already de-risk a lot right there, right? Then you're kind of left with, okay, what does the Dow actually do, right? Let's just take a protocol governance Dow. Well, I think it probably, assuming things are set up reasonably well, probably it can adjust some parameters of the smart contract like variables. And maybe it can actually fully upgrade, like Laura mentioned before. maybe it can fully upgrade the code to the new version, right? And so what is that service, right? Well, it's not really a software development service. It's kind of like a protocol governance service, right? So I think it has similar risks maybe to like ICON, which is the internet corporation for assigned names and numbers. And, you know, look, they do get sued sometimes. But what they get sued for is like violating their own rules and procedures. So I actually think that like, what the Dow is doing in this world is very limited. There's always going to be some risk of litigation.

Even if you have an entity, there's still risk of litigation and there's still risk that people will say, oh, you controlled it. So we're going to see you personally, particularly regulatory stuff. So I just think at the end of the day, it is a tradeoff, right? You are taking some risk, but you're doing it to honor that autonomous concept. And really the risks of just setting some parameters on a smart contract or deciding new code to adopt is relatively manageable. In tort liability, there's a doctrine called the economic loss doctrine, right? It says if someone was negligent and your only losses from that negligence were economic damages,

you cannot hold that person liable in tort in the absence of a fiduciary relationship, right? So if it's clear that there's no fiduciary relationship, because the participants in the Dow kind of disclaimed that and they don't promise anything, right? And the losses are economic, which I think will be the case until a Dow controls a drone or something in the real world, which I would recommend against. I actually think the legal risks are quite manageable, to be honest. Sorry, can I just put you on the spot, Gabe? Is there any jurisdiction you recommend for these Borgs?

We're working on some right now that are using Kaman foundations. So I think this is one advantage of Borgs. It depends what it's doing, right? because Kamens is quite good in that it has these memberless foundations and it's basically zero tax for, you know, unless you set things up in an incompetent way. So it's good for certain purposes, but then on the other hand, it actually has a relatively strict virtual asset service provider licensing regime. And it also has fairly strict requirements on not being used as a tax haven for intellectual property monetization by companies that actually kind of have their, you know,

their economic substance elsewhere. So like if you were doing an IP Dow, like probably like Nouns Dow, you'd probably want like a Seychelle or maybe Panama because they're more hospitable to IP. But on the other hand, for, you know, something that is just like a security multi-sig, you know, the Caymans might be appropriate. So you can cherry pick, right, and pick different things for different purposes rather than this monolithic full Dow wrapper in one specific place. So this is, you know, a proposal that you have, you guys are working on. But I wanted to kind of contrast where you like DAOs to go with, you know, kind of some of the developments that have already happened. And already I hear, you know, some of you have criticisms of these. So why don't

we just start with the Wyoming one? That's, you know, one of the states that have been creating laws to help DAOs get some kind of legal recognition. What is that? law say and how good of Bill do you think this is? So look, there have been some DAOs that have, in fact, I formed one of the first ones. It was Meta Cartel Ventures Dow. And we called it a Dow, although nowadays I probably wouldn't call it a Dow, but it's essentially an LLC that uses smart contracts and, you know, they make venture investments, right? And we just used an ordinary Delaware LLC for that.

You can do that. There is no problem with doing that because LLCs are. extremely flexible, you can basically write nearly any rules you want for them. But on the other hand, I think people just wanted it to be easier with less custom drafting. And so I think the kind of steel man why it might be good is let's create a specific type of LLC that's meant just for DAOs. That's the idea behind the Wyoming Dow Law, right? We have these Wyoming DowellCs. It has some custom rules, like for example, that you need to put in the, like in the publicly, I believe, if I recall correctly, that you need to put in the publicly filed documents that form the

Dow, what is the smart contract address of that specific Dow, right? And there are some other rules around it. You need to specify, is it algorithmically managed or is it member managed? These are not requirements of a Delaware LLC, even if you use one for Dow's. So it just kind of sets more of a roadmap for exactly a good way, I guess, to form a Dow that is an LLC. But make no mistake, it is saying that a Dow simply is an LLC, right? And that's where I think people might get thrown because that means it's a function of state law. That literally means that the Secretary of State of Wyoming can declare that Dow dissolved. And there's even a rule in the thing that says, if the DAO is inactive for a year, it's deemed dissolved.

So what does that mean exactly, right? I think there are things that could surprise people with this, especially if they're very crypto-native. And to me, it's just not really necessary because you can use an ordinary LLC, if that's what you desire, if you desire to fully wrap your Dow in an entity. And you could just set whatever rules you want exactly custom to your specific thing, not have to worry that you're violating one of the specific, requirements of this Dow LLC law.

Right. And like when you just said that about how if it's inactive for four years, it could be dissolved. I was like, what if there's a multi-sig and there's a lot of, you know, whatever token in it? I was like, uh-oh. Fatouet, what's your take on the Wyoming LLC law? I mean, I totally agree with what Gabrielle said. I feel like basically all of the jurisdictions who are into technology and blockchain-based technology are trying to understand what DAWS are and understand it within their own language of the laws and regulations that they have. However, this language is not yet suited to understand and bridge with these organizations.

Dow's are a type of organizations that we never knew before, where anyone from anywhere physically can join a group and govern some assets or some other things. And this is basically unknown by regular state laws. So they're trying their best to basically either capture a market share, be attractive and be pioneers in this field. But unfortunately, using old laws or old understanding is just bound to fail when applied to doubts. So Wyoming has been, like there was small adoption. I think like last I read was around 400, I think 500, I think 500, 500 dollars registered over there. It's a lot more than I would have thought.

I'm going to double check after him, but I'm pretty sure that these are the numbers I read. But nonetheless, I've rarely heard that as being satisfied by this choice. So oftentimes they would opt for it either because they just simply need an entity and want to experiment with the Wyoming one because of very practical reasons. So they would need an entity to own some form of physical assets and they cannot do otherwise or because they're just U.S.-based, and for various reasons they need an entity, and they would go for this. But it's not just a default option for DAOs at all. All right. So in a moment, we're going to talk about Utah's new Dow Law.

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new fits, and virtually everything in between. That's the powerful backing of Amex. Conditions apply. Back to my conversation with Gabriel and Fateme. So in the same spirit as the Wyoming Dow Law, Utah also recently passed a law that grants legal recognition and provides legal liability for DAOs. It calls them LLDs. What did you think of this version?

So LLDs, it's an interesting acronym, limited liability DAWs. Basically, Utah, to my knowledge, is the most innovative. jurisdiction as of date with regards to recognizing DAO's as legal persons. So basically the biggest pain point for DAO's and

what we discussed prior in this episode is that they are not understood by jurisdictions as being legal entities or legal persons. So they are not able to sue, for instance. They are not able to, as one

organization own assets. And the participants in this doubt, whatever, whomever we deem these participants are, because this is also not very well defined, are not necessarily protected by limited liability. So in case something goes wrong, there is a risk that a participant can be sued for the entire, for instance, damage that is happening. So what Utah did is that they basically took the Kuala Dow model law, which is basically a piece of research that was published by the Tintang called Kuala, I think, in 2021, where it presented a framework, a legal framework that jurisdictions can just take the model law and basically pass it as a law within their legal system. and then automatically, those that fulfill the conditions of this model law will be recognized as legal persons.

So the model law is structured in a way where through the principle of functional and technical equivalence, the conditions that generally need to be met for corporations to be recognized as legal persons are fulfilled by doubts. So for instance, a corporation needs to be registered in a public register, I think, anywhere in the world. And this model law looks at DAWS and sees, okay,

Dow's are not going to be registered. And we don't want DAWS to have to go and register in a public registry of the state of Utah or New York or whatever. That is a lot of overhead and bureaucracy. But we look at the technology and we see that there is a technical equivalent for DAOZ that are registered on a public blockchain. So by basically saying that DAO's, must be, for instance, registered in a public blockchain and have like this information

disclosed on a public forum. We think that this fulfills the same condition and policy requirements that usually nation states needs for corporations. Therefore, it should be recognized by the jurisdiction. So Utah took this model law, but adapted it because obviously there are a lot of points within that model law that are more difficult for jurisdictions or for politics to just embrace without any changes. This model law is made for DAO's and for the blockchain space and by the blockchain space as

well. So a lot of people who work on it are builders and are members of DAO's. And obviously there's very little compromise therefore on, for instance, issues of privacy. We have doubts where members are pseudonymous or anonymous right now, and this model law wants to preserve that and doesn't want to require every participant to disclose their identity. However, politically, this is something that is difficult for jurisdictions to just accept. So Utah took the model law, but what it did is that it changed some of the aspects.

So, for instance, required a registered agent to be in Utah for the state doubt. So if a DAO wants to benefit from this law, it needs to appoint a person in the state of Utah that can be basically in between, person between the public state and the DAO. And there's also some other adaptations. And is that person, the person basically who could be served legal papers? Exactly. That's one of the main purpose of this person, I believe. that's hilarious because this goes back to the Uki thing, which we'll discuss in a moment.

But yeah, so Gabe, what's your take on, well, either the Utah law or this model law. The model law is like a more interesting approach, I think, than just saying, you know, let's turn all Dow's into like slightly modified types of ordinary business entities. So, yeah, I like the philosophy behind it. The tricky thing, right, is that there's this desire to say, well, look, not everything that you just call a Dow should get limited liability. So let's try to carve out exactly what types of things we mean by Dow should get this limited liability, right? And as you do that, you start having words that describe the way a Tao should basically be, right? And then whenever you have that, those words are subject to interpretation, right?

And it just becomes a little bit of a tricky exercise, right? Like, is this really just creating limited liability or is it also functioning as like a backdoor type of regulation as well? And to me, when you mix those two things, it doesn't really work very well, like trying to do regulatory things and give limited liability at the same time. I kind of think those are two different functions. But maybe you could do it. But to me, I just always worry, okay, like, are we really getting this limited liability? or is there some weasel room within the way things are phrased that someone can retroactively use to try to challenge whether that limited liability applies? And I think as soon as you tell

people, we have limited liability, they get sloppy, right? They get confidence and they start maybe now like really being like confidently treating this as like just a business that you run. And I just don't know that these really are meant to be businesses. I prefer for business. businesses to be run out of business entities and for DAOs to be DAOs. But I think I'm glad people are trying out different approaches, you know, and I think we'll have to see what people do with these things, what litigation happens over these things. And it's going to play out over a long time. And it'll be fascinating. Yeah. And before we move on to some of these questions like around Uki Dow and stuff like that, I just wanted to ask because we were discussing this before the show,

Fatima, you mentioned that there are other jurisdictions that might also adopt variations on this model law. So can you elaborate on that? Yeah, so there are various, there's a few jurisdictions offshore island ones. I'm not sure we can talk about it, whether it's public yet, there are discussing, but there was also the state of New Hampshire, so back to the US, who was considering at the same time as the state of Utah to basically enact a version of the model law. However, in that state, I think these efforts have been halted for now, postponed to next year. They decided to wait because Mutazdao Act was pushed quite quickly and adopted, I think 1st of March and it's going to enter into force in 2024, so next year. But New Hampshire

decided to wait so that they can do a better integration of the model law. So I feel like there is definitely the need for a lot of these provisions of the model law to be tailored to the regulatory space in at least the U.S., which is rapidly also evolving, and all of the stakeholders have to be around the table for this law to be successful. So for now, New Hampshire is, I think, on hold. All right. So we keep referring to this. So let's discuss it now. One of the more surprising events involving Daos from last year was that one court determined that Daos could be sued. This was the Uki Dao case, although the facts and circumstances of that case are sort of unusual. Or maybe they're not.

I don't know. You guys tell me. But can one of you recap what it is that happened with that case and, you know, how the court determined that it could be sued? Sure. Well, there's actually three legal actions related to Uki Dao, right? So I just want to be clear. one is that the CFTC had an investigation and I suppose a claim against both the original BZX development company, the BZX Dow that ended up managing the BZX protocol that was created by that company and then the successor to the BZX company and the BZX Dow, which was renamed as Uki Dow, right? So the CFTC kind of brought claims for violations of the Commodities Exchange Act against all of those people.

The developers and the development company settled with the CFTC. We can talk about that settlement. And the CFTC then went on to actually file a lawsuit against Uki-Dow. Then there is also at the same time a class action against all of those same players related to. to a hack of the protocol where users lost money. And all three of these things are relevant and sort of treat the Dow as well as various Dow members as defendants. The core of the CFTC's claim is that Uki slash BZX protocol was a, you know, essentially a credit

protocol on Ethereum and some other block chains, including BSC, I believe, finance chain, which enabled people to engage in leverage trading on tokens, right? So, you know, you could borrow a token and you could, you know, use that to lever up essentially, you know, taking a long position on the token, right? And so the CFTC says, well, look, you're only supposed to be able to do that on one type of platform, and that's a CFTC registered contract market. And so, you know, you guys were violating the Commodities Exchange Act, right? And so, you know, the developers settled individually, their company settled. And then, but the protocol is still running. And there's something called Uki Dow that governs the protocol, right? And so the CFTC decided to sue them as well. Naturally, the last thing you want to do if you're a Dow getting sued by the CFTC and the CFTC might not otherwise know who's a member of the Dowish show up to court and say, here I am, I'm ready to defend the claim, right? So no one is stepping up to the plate to actually defend this lawsuit.

So a bunch of people, including Lex Punk and A16Z and Paradigm and some others, Defy Education Fund, I believe it was sort of the fourth one there, filed amicus briefs trying to kind of fill the gap there, make some arguments, okay, no, you guys can't do this lawsuit. You can't serve, you can't properly serve process on these Dow members. You don't even know who they are, and the Dow is not even an entity. Well, we lost that, unfortunately. You know, the court said, no, this is just an unrememberly.

incorporated association of some sort like any other. It is an entity. Anyone who's part of this entity would surely be reading the governance forum. The CFTC posted a notice of service to process there. They know they're getting sued. They can show up to court if they want. They didn't show up to court and now the CFTC is seeking a default judgment against the entire Dow. Hasn't named any individual members of the Dow, but it's seeking one against the Dow itself, whatever that ends up meaning. And then for the class action lawsuit, also, again, the Dow has lost so far. The lawyers for, I guess, some of the individual defendants tried to get the claim dismissed on the grounds that the Dow is not a partnership or on the grounds of the economic loss doctrine would bar the claims.

And at least at this very early stage, which was just sort of determining whether a cognizable claim has been made that can move forward potentially to trial. the plaintiffs have won that particular motion. They didn't win the whole case, right? But there's at least enough there that it can potentially go to trial. Wow. Yeah. So one thing is just you sort of left that dangling and it's kind of funny to think about.

So they served in the forum. But then I'm assuming a lot of the members who are not publicly known, just they're not going to reveal who they are. And then so is there anything the CFTC can do or nothing? We don't know. There are things they can try to do, right? They clearly, I think at this point, they just want the precedent of getting some type of judgment against a Dow, right? We don't know what further they're going to do there with that judgment. Like, will they try to find individual members of the Dow and say, you're now liable for damages for violating the thing? Or will they say, hey, we got a judgment against the Dow. Let's go to the, ISP for their website and say that their website is facilitating an illegal business, shut it down. Let's go to whatever platform the governance forum is run on, say, look, their conduct is illegal, shut this governance forum down.

I think it's probably more likely what they're going to do than try to chase all these individual people who they may or may not know who they are, right? But it's sort of yet to be seen, and it's yet to be seen whether they even will get the default judgment, but that's what they're seeking. Konami, do you have any thoughts on that whole situation? There's just so much to unpack there. Yes, totally. I feel like this is one of the most famous cases right now,

and everyone is just waiting to see what happens in the Uki case, and whether or not a DAO would be considered to be a general partnership, for instance, and if the participants in the DAO governance are going to be liable for being part of said DAO. And I feel it's really interesting to wait and see also how if there is a judgment against the Tao, how they're going to enforce it. Because this is an open question right now and whether they're going to go after the most well-known or wealthy known members of the Tao or they will go after the front end and so on. So I think this will inform also a lot of Tao's how to structure their activities in the future. knowing that DAOs usually are not bound to one jurisdiction and it's very fair game to try to identify the risk in one jurisdiction.

So if I think this is in state of California, right? And so if whether Dow is linked to California and the U.S. It's federal, it's U.S. federal court in California. U.S. federal court in California. So if it's linked to the U.S., then it has to take some. actions to basically mitigate that risk that would pose a positive or a judgment against the DAO. What I think this does basically is that it creates some incentives for DAO participants to start becoming more and more privacy-centered and pseudonymous so that they cannot be held liable

for something that either the DAO does or other participants in the governance. vote in favor against us. And this can be actually quite tricky. So for instance, if I'm a DAO participant in the US, I am also obliged to declare in my tax declaration each year all of the tokens I hold. So I have to basically disclose that I am a participant that said DAO, and then I'm basically douged to the US government as being someone who may be liable for it. So if there is a positive judgment, then it also creates this risk that people will have to either

structure their holdings in a way that will not appear in their tax declarations or basically obfuscate those so that they are not held in some illegitimate way, I think, liable for whatever happens on the doubt level. But wait, but with the IRS tell the CFTC, look, this person has that token? I don't know how that works. Like, is that something where the agencies talk to each other about that? I wouldn't know because I'm not a U.S. lawyer, but maybe Gabe, you know that. Yeah, I'm honestly not sure about all the information sharing roles among agencies.

I wish I knew more about that. I'm not sure. But to harken back to our earlier conversation, there is an easier solution here. Just stop turning Dow's into revenue earning partnerships and businesses, right? There won't be anything to report. No one is sitting around saying, you know, Bitcoin miners. Isn't Bitcoin just a giant partnership? Like, shouldn't Bitcoin be sending K-1s to every minor? Like, no one's saying that or no one's even saying that about like Ethereum and validators, even though that looks like a little bit more

partnership like. So like, there's a bigger problem here, right? And there's an easier solution. Just to stop making these into businesses. They're not meant to be that. They're meant to be like robots, right? So, yeah, I'll get up my soapbox now. But just a side note. But wait, one other thing that I expected you guys to talk about, and maybe I just missed it, but there was another piece of this case, which was like Uki was determined to be this unincorporated association. And I remember like a bunch of lawyers were kind of arguing about that.

So can you define what that is and then talk about whether or not you think DAOs or any or any even type of DAWs would fit with that definition? Unincorporated association is a tricky term because personally, I, At least before that case, I tended to use it as just sort of like a group of people, but we don't know. We're going to kind of be agnostic on whether it's an entity or exactly like the nature of that association's activities. But in some jurisdictions, unincorporated association actually means the same thing as partnership.

So it can get very confusing. In California, in terms of like a service of process issue, because that was the issue that was being debated, right? Like, can the CFTC, has a CFTC even given proper notice of the lawsuit to the Dow members, right? And if the Dow is an unincorporated association, then it has at least something sufficiently close to personhood that based on the relevant precedence, you can serve that association. And you don't need to serve every individual member of that association. Now, what it has been used for in the past is sort of ill-defined things like, gangs, for example, right? You know, like the bloods are not like a company, right, but they,

but they are an unincorporated association that is like sufficiently discreet where the government has decided you can serve process on that organization, right? And so yeah, it's not clear like exactly what all the rules of an unincorporated association are, but it's clear that it's sort of like sufficiently a thing where you can serve process on it rather than having to serve each of the individual people. I find this very interesting. So from a Swiss lawyer perspective, this is a concept that I just discovered in the context of crypto in the U.S. and the Oki case.

I think this is just a curiosity for me that I'm following. I would just also encourage. everyone generally with this topic to take a step back. There's a lot of anxiety in the space right now because of all of the legal and regulatory developments that happen. I mean, there's like daily news and it's very hard to follow. And usually the news is quite pessimistic. And especially also when we see cases against thousands of members, that it's even more

anxiety-inducing for anyone who is trying to participate in the space experiment and also build. And I would just take a step back and basically say that no matter the outcome, there are appeals possible. It's not the end of the entire case. And at the same time, there are also legislative efforts that are deployed in the U.S. and elsewhere to clarify the situation and to basically restablish some form of equilibrium and justice and also clarity in the space. And basically whether or not DAOs are considered to be unincorporated association, I feel could be of interest and people have to have that in mind when they are building the DAO in case there are conditions that

need to be met for this to be an unincorporated association. They don't want that when they are building the DAO try to address these conditions in a satisfactory manner. But at the same time, it's not the end of the world if it is, I think. All right. So I want to contrast the Okie Dao case, one with Maker because it feels like these were decided somewhat differently. So what happened in this Maker Dow case was, I guess the judge dismissed it saying that the Maker Foundation was not a proper defendant because, quote, it has been dissolved and therefore a lack's capacity to be sued. So just before we recorded, I think Gabe you implied that this indicates that like the legal status of Dow's was decided differently in these two cases, Uki and Make.

The Maker Dow case is not, yeah, it's not so much about DAOs or it's not that there were two entities sued in the Maker Dow case. One had been dissolved before the lawsuit and one had not. And the one that was dissolved, you're right, you know, the judge basically said too late, it's too late to see this entity. The one that was not, however, the judge still sort of reviewed the merits of that claim, right? Now again, it wasn't entity. It wasn't the Dow. But that particular entity does things that, you know, are currently done by the maker, by the Dow, right? They got rid of the entities for a reason and the Dow took over whatever they were doing, right? So what's interesting about that case is that the activities involved in managing, governing a smart contract protocol, potentially creating a smart contract protocol. We're at issue in that case because that entity had been doing those activities and some people lost money in the protocol. It was over the Maker Dow Black Thursday incident where a subset of vaults basically had their

eph auctioned off way more cheaply than they were supposed to. And they incurred like the people who got liquidated incurred a way bigger loss than they would have expected to, right? That was the issue. And they basically wanted to say, hey, this protocol was designed in a negligent manner or it was described falsely, right? Those are all issues that can also be faced by a Dow, right? if the Dow is setting the parameters negligently or upgrades the system and it turns out the new code is bad in some way and people lose money, those are the issues, right?

And so what's interesting are those issues and the way it was decided. And the judge did apply the economic loss doctrine there. And unlike in the Uki Dow case, the judge said, there is no special relationship here. These developers never said, hey, we're looking out for you guys. We're going to give you the best protocol possible. This protocol is awesome, and we're going to monitor everything, and we're going to always be making sure it works. They never said that. They did some stuff, and they may have been trying to make money off of the system in various ways, but it just doesn't rise to that level of special fiduciary duty where it overcomes the standard rule under torts, which is that if you only incur an economic loss because of someone's negligence,

you do not have a tort claim against them. If you want to have claims against this type of people, you need to enter into a special contract with them that gives you the right to claim a breach of contract or something. And people using D5 protocols, not only do they not do that, but typically the front end or the web interface that people use to access the protocol. If you look at the terms of service, it actually disclaims all liability. It says, as is where is, we're not doing anything for you, use it your own risk, right? All those things. So that is the deal that people are striking when they use these protocols. It's caveat emptor.

It's do your own research. Look at the code yourself or get your buddy to look at the code or hire someone to look at the code. You're not going to go to the developer. So I think that case, although it was about a development entity, has a lot of implications for these types of lawsuits that could be brought against Dow's as well. And to me, it illustrates that although there are some risks, the risks are pretty manageable if you're careful about what you say. what you put in relevant terms of service, don't overpromise things. Just call spade to spade, keep the Dow's activities limited, and I actually don't think the liability risks are necessarily that high. But then is that in contrast to how the U.S. government handled the tornado

cash? Different bodies of law, very different bodies of law, very different issues, right? One is private plaintiffs who sustained losses trying to recover damages from developers. This, when it's the government saying, no, your protocol is violating regulations. That's a very different thing, right? And the tort issues are out the window, right? It's more whether you are doing something that in some ways facilitating violations of law, right? And in this case, the government is saying, hey, you guys created a system that's designed to help people evade sanctions laws, right? You're aiding at abetting violations of law, right? That's essentially what the theory would be there. Now, keep in mind, the government isn't, you know, actually suing the U.S. government at least is not suing

tornado cash developers as far as I know. It's just imposed these sanctions on people saying, don't use the tornado cash system. In the Netherlands, there is a tornado cash developer who's currently sitting in prison who's being brought up on those types of charges, although I'm not an expert in Dutch law or whatever it is. But it's just different when it's a violation of regulations than it's the government suing you versus a private plaintiff who just lost some money on your Yeah, Fatima, do you have any thoughts on that? I don't know if, I mean, I guess they're not exactly commensurate, but it struck me that it was in contrast to what Gabe had been saying. I mean, I find the decision in the makers out case very, very positive because we usually see right now this trend of always trying to find someone accountable for whatever negative happens related to blockchain or use anything that happens in the crypto space as just negative.

advertisement and then point to some people liable. And I find this decision to be correct. With regards to tornado cash, I mean, this is a very, very unfortunate situation. And I really hope that basically the two lawsuits that are brought now against this decision by OFAC

to list the software as persons under sanction to be successful. I feel that this decision is basically basically taking away a lot of our freedom to privacy and to assembly and basically a lot of the rights that we have away from anyone, so any U.S. person, but also unfortunately the reality is that OFAC's decision regarding sanctions and generally the policies in this field reach outside of the United States.

So right now, if you are in Europe and you're not a U.S. person, it will be way much more difficult for you to take your funds out of tornado cash the way you would have done before, although this is not illegal there. But basically, whatever OFAC decides to put under sanction has ripple effects everywhere else in the world and we should just not vilify privacy tech in this way privacy tech is or any tech basically that the main narrative that is put forward to basically put to Reney lachsh under sanction and also to go against privacy tech is oftentimes that it's used by for instance North Korea when they are laundering the proceeds of that they opting illegally through hacks

or through extortion and so on. But unfortunately, I don't think that we should give that much power to North Korea to basically decide to use a software over another, and all of a sudden this software is helping them to launder money, and no one else can use it. So basically, we are at the mercy of their decisions, and this is just not sustainable at all. So I hope that there will be some positive outcomes to this law,

lawsuits and we will be able to use privacy tech in just in a lawful manner without having to worry about basically doing something illegal. Yeah, and keep in mind, I mean, I think on this, as far as the issue of limited liability goes, this is like the point I really want to make that when there's a violation of regulations, having an entity is not going to give you this magical limited liability anyway, right? Like, you know what I mean? Like the tornado cash devs had an entity, right? The guy is still in prison, right?

When it comes to crime and like serious like financial regulations, they are going to, they're not just going to stop at the entity. They're going to go to the individuals no matter what, right? So that's the thing that I think is lost in this whole, oh, like there's all these risks. Like maybe you're violating these regulations. Like you should really have an entity. Maybe. But like that's really, if you're violating regulations and criminal statutes, that's not really

going to help you very much, to be honest. Yeah. Well, but we, so a couple of things. So first of all, like with Uki Dow, it felt like what they were saying was like, oh, if we have this decentralized Dow, then it's okay for us to do these illegal things. But when it comes to, you know, with Tornado Cash, like Coin Center would say, oh, it's not illegal to write code, especially, you know, in the U.S., we have a right to privacy. You know, there was sort of like an unintended consequence there, but I just want to, I don't know exactly what you're saying. Are you saying that you thought what the tornado cash deaths were doing in terms of writing this code was illegal?

No, I'm not saying that, but I think if it was illegal, right, then whether they have an entity or not is not going to be the issue, right? That saves them, right? The government will pursue the individual is responsible. Again, the Uki Dow guys, they had an entity too. The CFTC still sued the individual people because there's, you know, a control person. aspect of the law that says the people who ultimately making the decisions, they're liable, even if they're operating through an entity. So it's just kind of two different issues, right?

You can use an entity to protect against like commercial liability and some basic things. But when it comes to these regulatory things, they are just going to go after the people responsible no matter how you set it up. So the real lesson is try not to violate regulations, very controversial, obviously, and a lot of like questions around that. But that ultimately is the issue, not whether you have an entity. or not. If I can just add to this, I strongly believe that the developers of Turned Cache have not done anything illegal. And writing software should not be deemed to be illegal. And using software neither. So if you do something illegal ahead of you using the software, then

obviously you should be responsible and made accountable for this. But just simply using a privacy software is not illegal. And I think that this needs to be repeated until we get everyone else in regulate, especially to agree with us on this. To go back to basically BZX and what we're discussing, I find that the fact that they so openly provoked regulators and said that decentralization will shield them to be basically what brought them in this situation in the first place. and the effect that this case can have may just harm or cast a shadow over the entire space. And this is basically, I want to just talk to every builder and that they should be extremely careful when they put forward these claims. Because the effect of what they are doing and what they are saying will be greater than just their own projects. And basically they have also a responsibility to, first of all, act just lawfully.

And second of all, also to try to have safeguards in place so that they can protect whatever the policies of the regulation want to protect and then also protect the space overall. Yeah, intention matters. If you're decentralizing because you're just wanting to evade regulators, then that's a different thing from decentralizing because that's like the best. version of what it is that you're trying to build or, you know, whatever. So it's the last case that I want to discuss before we go is obviously what happened with Mango. So Mango markets, you know, what had this market manipulation by Avi Eisenberg, who then went on Twitter and told the world that he had engaged in this quote unquote highly profitable trading strategy, which, you know, the regulators determined was market manipulation. And what had happened was that

he actually returned a big chunk of the money to the Mango Dow because they had agreed with him that they wouldn't pursue legal action as long as he returned this money. So before we even get to like what happened in court, I was just curious. At that point in time, did you guys think that that agreement was going to be legally binding? I thought it would not be legally binding. I thought, you know, look, they're essentially being coerced to to agree to something in order to get some. some money back. They're humoring him. They're trying to say whatever it takes to like give him some false comfort that he can keep some of the money lawfully and then give the rest of it back. And he'll be okay. And I do not think that it would be an enforceable agreement. Plus it's a Dow as well. So there's all these questions like if it is enforceable, who's an enforceable against? Every user of the protocol or just the people or the entire Dow, which may not include all the

users or just the particular people who voted yes in favor of the settlement? You don't know. You don't know. So there are many questions around it and if I had to have guessed, I would have guessed no. I would take the opposite stance here. And I would say that if and when this decision is made according to the governance rules of the Dow, then I think that it must be upheld. And I don't think that this decision was, obviously, it was a very, it was a challenging situation. There was time pressure. There was financial pressure. There was a lot of stress involved in making that decision.

But no one, I think, forced them to make that decision. The identity of this person was known at that point. So they could have to simply decide not to make any deal with this person and try to basically have law enforcement go against the person and ask them to recovered the fund. So they made this basically, I think, informed decision to enter into that deal. Whether or no, it's a good deal, I think this is a whole other question. I think it's a terrible deal. But then I feel like those who may be responsible for this are the ones who made bad strategic decisions or had bad negotiation or actually made decisions ahead that led to this exploit even being possible. There is, I mean, there is some interesting nuance here because ultimately, Avi cleverly,

I think, arranged it so that the users could be made completely whole. And only the treasury funds of the Dow, which had been raised in kind of like a sale of Mango tokens. They had this insurance fund concept where they sold Mango tokens. And then they had this like insurance fund that was controlled by the Dow as a result of that, right? And only that in the end, only that value is what would be reduced and go to Avi, right? Because of that, I think there is a stronger argument that it's enforceable, right? Because it's kind of like the Dow agreeing to give its own money to Avi, whereas if the users had gotten haircuted, I don't think there is really any agreement or implication of agreement on behalf of users that because they're depositing funds in the protocol,

they're empowering this Dow to like negotiate deals on its behalf, right, on behalf of those users, right? So that nuance, I think, does lead toward, you know, the reading of it being enforceable, more defensible than if the users themselves had been haircuted. Okay. Yeah, because initially when you guys responded, what was interesting was so I agreed with Gabe in the sense that I thought it would not be legally enforceable, meaning like, I thought that a court would say, like, this is just bogus. Like, you guys made up this thing and it's like you're not a legal entity anyway and whatever. I think that I thought the court would just dismiss it. But what I liked about Fadamese's answer is Fadomé was like, a hello, like, who cares about the status? If you are part of any

group and you guys agree on something, like you should follow through on that, which just makes sense from a common sense point of view. So it was just funny. I felt like you guys answered it slightly differently. But what was interesting is that actually, surprisingly, this judge disagreed with me and Gabe and went with Fadame and was just like, yeah, even though this isn't, you know, a contract between lawyers or whatever, this, you know, is legally binding. So I was curious for your thoughts on, you know, that judgment. You got to keep the procedural posture in mind here, right, because it's not like a final judgment. But there was a mango development company was trying to act on behalf of the Dow to come in.

Because a lot of people are suing Avi now. And so these developers came in and they said, whoa, whoa, whoa. I know a lot of people want money from Avi and they're suing him and they want to throw him in jail and all this stuff. But he still has $30 million from us that he took in a hack. And we want a temporary restraining order, judge, to, like, free, I forget exactly what they're asking for, whether it was to probably just to freeze it, right, while this all gets figured out. And their main argument was that, number one, you know, he's, look, the guy's getting sued for market manipulation in the attack that let him get this money in the first place, right? So it was all illegal. And number two, that, yeah, we, like, have this, like, settlement agreement that the Dow voted on.

But, like, that was clearly duress. It was done under duress, meaning it was coerced. It was not a real agreement. And the judge reasoned exactly like Fatima, he said, wait, you guys negotiated this. You rejected his initial proposal and you made a counterproposal. That's not duress. Dress is like when you tie someone up and say sign this or I'm shooting you in the head. That's duress, right?

You guys negotiated it's clear, no duress. But it's just on a motion for a temporary restraining order. They could still ultimately win like on a full trial. and a full consideration of the merits, right? But you have to get that temporary restraining order, you have to show a high likelihood of success on the ultimate merits of your claim based on what you've given the judge so far.

And based on what he had right there, he wasn't seeing that high likelihood that rises to that standard and he was not willing to give the temporary restraining. I feel like basically, if we want to be coherent and we want to constitute doubts as being this organization with personhood,

then we have to also respect their decisions. So we cannot be like in this specific case, we go beyond it and we just disregard this decision they made because after the fact it seems more favorable to their pockets to disregard it. Like I don't think it should work like this. Yeah. All right. All right. So going forward, are there any particular developments regarding Dow's that you're

especially interested in checking out? Well, I think one of the biggest ones is what we hit on, which is, is the CFTC going to get a default judgment against Uki-Dow, whatever Uki-Dao, whatever Uki-Dao is? And if it does get it, what's it going to do with it, right? Is it going to try to go after individual people, or is it just going to use it as like a, like a cudgel to take down their website or something? That's a very interesting one. I'm also interested just to see, because this is somewhat a game of cat and mouse, right? So what's going to be the adaptation here, right? Are people just going to stop doing DAWs because of all these lawsuits and things and find different ways to design protocols?

Or are they going to adopt the Borg approach, right, of minimizing what the Dow does and having more entities? You know, how's the industry going to adapt? I mean, I can't really predict exactly where it's all going, but, you know, I'm here. other than everything that's happening in the crypto law space, especially in the U.S., I'm very excited to look at DAUs and see how they are trying to self-regulate and target all of the responsibilities that they must have in protecting their users, in protecting their software and having compliance strategies while being resilient. I think there's a lot that can be done by DAO's to make the space better and also to be more confident with regards to regulators when they are negotiating policies with them.

And I feel like we should be more building rather than looking outwards for answers and solutions. All right. Great. Well, where can people learn more about each of you and your work? My Twitter is at LexNode, L-E-X-N-O-D-E. I'm there, I'm terminally online, as they say. And also check out Delphi Labs Medium page, where we'll be publishing a very long and comprehensive article about Dow's, the liability associated with Dow's, had a limb in that, and this new model of Borgs as a technique for going back to the pure concept of DOWs

and also working on smart contract-enhanced business entities at the same time. On Twitter, simply. My handle is Fatal-M-E-H. Sounds ridiculous when I say it out loud. But that's where you can find my post. Love it. All right. Well, it's been a pleasure having you both on Unchained.

Nice. Thank you so much. Thanks so much for joining us today to learn more about Gabriel and Fodomac. and Dow's, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Mark Murdoch, Matt Pilchard, Zach Seward, Juana Ranovich, Sam Shreveh, Ginny Hogan, Ben Munster, Jeff Benson, Leandro Camino, Pamuchamdar, Shashon, and CLK transcription. Thanks for listening.