Understanding Decentralized Autonomous Organizations (DAOs) and their Legal Implications

On the occasion of the release of the book Decentralized Autonomous Organizations in the Legal Landscape – From Decentralized Governance to Legal Frontiers (Edward Elgar, 2025), Florence Guillaume [1] answers a few questions from Eleonόra Bassi [2] in an interview conducted on 24 April 2025. The discussion explores the key legal challenges posed by DAOs, their impact on traditional governance structures, and the evolving regulatory landscape. Through this exchange, Florence Guillaume shares insights on how DAOs are reshaping corporate and legal paradigms in the digital age.

Eleonόra Bassi: How did you first discover DAOs, and why are you interested in this topic?

Florence Guillaume: My first encounter with DAOs dates back to 2016, during the infamous DAO hack. At the time, I was writing a chapter on aspects of private international law related to blockchain transactions for a book on blockchain law. Witnessing large sums of money virtually disappear from accounts held by people around the world caught my attention. I immediately saw the connection with my research in international corporate law and international financial law. Later, I participated in drafting the COALA Model Law, [3] which gave me the opportunity to engage with DAO specialists worldwide. This experience significantly deepened my understanding of the legal issues surrounding DAOs.

Eleonόra: What, in your opinion, are the key characteristics of a DAO?

Florence: The answer to this question depends on one’s perspective. Some might argue that a DAO is merely an algorithm, while others emphasize decentralization as its defining feature. However, I still struggle to grasp the full scope of this term: Does it refer to the network on which the DAO is created or to its governance structure? Probably both, but to varying degrees. To me, a DAO is primarily a community where participants pool their resources to achieve a common goal – an understanding that aligns with a corporate law perspective. In my view, a genuine DAO must involve a human community. The concept of a DAO governed solely by artificial intelligence does not align with my vision.

Eleonόra: What is genuinely new about DAOs compared to traditional companies?

Florence: The primary innovation of DAOs lies in their non-hierarchical structure. Unlike traditional companies, which are governed by boards or managers, DAOs operate through direct democracy and participatory decision-making. This model enables people worldwide to collaborate efficiently, embodying a new form of social organization that is particularly well-suited to the digital age. The disruption of classic top-down governance is a key characteristic of DAOs. By adopting flat hierarchies and granting direct ownership to their participants, they redefine traditional power dynamics. Another aspect is the fluidity of membership – joining or leaving a DAO is remarkably easy. However, this fluidity necessitates mechanisms to maintain coherence, ensuring that the DAO remains aligned with its foundational vision while allowing for its natural evolution as original participants depart and new ones arrive. This can lead to situations where a few people need to retain some power over the DAO to guide its development, even if it means moving away from the original flat hierarchy model.

Eleonόra: What are the main legal challenges DAOs currently face?

Florence: The main challenge for DAOs, virtual entities governed by the principle of ‘code is law,’ is their inevitable interaction with the physical world through their participants. This interaction often attracts scrutiny from state authorities regarding liability, financial regulation, and taxation. The early illusions of DAO participants are gradually fading as they come to realize that escaping legal frameworks is far more difficult than anticipated. Sooner or later, a state authority is likely to take an interest in a DAO’s activities – this is when the reality of the physical world catches up with its participants.

For instance, in matters of liability, an emerging trend – shaped by the first decisions of Californian courts – suggests that those who control a DAO can be held legally responsible. This presents a challenge for DAOs that, in one way or another, exhibit some degree of centralization. The founding members, if they have retained control over the DAO, as well as its principal investors, may be held accountable. However, control is not limited to these groups; other actors, such as compliance committee members with veto power over community decisions, may also bear responsibility.

Eleonόra: Last year at DAWO24, [4] we had an intensive discussion about the optimal level of regulation for DAOs. Have there been any significant developments since then, particularly regarding their legal recognition in Switzerland today?

Florence: In Switzerland, no specific legal framework exists for DAOs, leading to the widespread use of ‘legal wrappers’ such as associations. Lawyers are developing increasingly creative strategies to anchor DAOs in the physical world by integrating them into existing legal structures. This may give rise to networks of interconnected DAOs with branches in multiple countries that, in some respects, resemble international corporate groups. Ultimately, this demonstrates that DAOs are, in many ways, reinventing models that have been developed over decades for traditional companies – albeit with a distinct ‘DAO touch.’

Eleonόra: How effective are current dispute resolution mechanisms for DAOs?

Florence: Current mechanisms, as suggested by the COALA Model Law, include internal DAO solutions or external blockchain-based dispute resolution systems such as Kleros [5]. Using blockchain and smart contracts for dispute resolution offers a key advantage: the automatic execution of decisions. For example, cryptocurrencies or crypto-assets can be directly transferred to the winning party once the decision becomes final. This approach works seamlessly for matters that can be executed on-chain but poses challenges when dealing with physical assets. If a decision involves assets in the physical world, such as money or real estate, it cannot be automatically executed. Instead, it must be legally recognized to be enforceable by state authorities – an outcome that is often unlikely. In such situations, arbitration provides a more suitable method for resolving disputes involving a DAO.

Eleonόra: How do you see future research directions on DAOs?

Florence: DAO research is still in its early stages, with many legal and interdisciplinary questions yet to be explored. DAOs offer fertile ground for rethinking traditional business and governance models, making this an exciting and promising field for future study. Personally, I see DAOs as an opportunity to develop a new business model that complements the numerus clausus of corporate entities by enabling the creation of a true digital corporation with legal status independent of its participants. However, achieving this requires a fundamental rethinking of corporate structures – one that fully integrates the core characteristics of DAOs into an entirely new corporate entity, rather than merely adapting existing company forms.

Eleonόra: I can’t wait to read your new book! Who should read it?

Florence: The book Decentralized Autonomous Organizations in the Legal Landscape – From Decentralized Governance to Legal Frontiers (Edward Elgar, 2025) is for anyone eager to understand the legal and organizational challenges of DAOs – whether you’re a legal scholar, lawyer, policymaker, student, industry professional, or simply a blockchain enthusiast. It offers a deep dive into how these decentralized entities are reshaping governance, law, and technology. If you’re curious about the future of digital organizations and their legal implications, this book is an essential read!

Suggested citation: Florence Guillaume and Eleonόra Bassi, Understanding Decentralized Autonomous Organizations (DAOs) and their Legal Implications, blog of the LexTech Institute, 08.05.2025

[1] Florence Guillaume is full Professor at the Faculty of Law of the University of Neuchâtel, Founder of the LexTech Institute, and Director of the Certificate of Advanced Studies (CAS) in Law and Artificial Intelligence.

[2] Eleonóra Bassi is a researcher at the Center for Global Competitiveness at the Zurich University of Applied Sciences (Zürcher Hochschule für Angewandte Wissenschaften, ZHAW) and a founding member of DAO Suisse.

[3] See Florence Guillaume and Sven Riva, Model Law for DAOs – a legal regime adapted to a new type of digital company, blog of the LexTech Institute, 25 January 2022.

[4] https://dawo25.org/

[5] https://kleros.io/