Abstract
The utilization of the novel Decentralized Autonomous Organization (“DAO”) structure to conduct business activity creates substantial challenges for the Bankruptcy Code (the “Code”). The characteristics of this unregulated, extralegal entity, built entirely on a blockchain and controlled by anonymous members through digital tokens, provides endless opportunities to avoid legal enforcement and exploit the Code. While the Code has provisions to apply to both individuals and organized actors, such as partnerships and corporations, neither DAOs nor their individual token holders fit neatly into these molds. When a DAO, or a DAO token holder, eventually faces bankruptcy, the current state of the Code and courts will be wholly unprepared for the chaotic fallout.
This Comment analyzes issues in potential DAO bankruptcies and proposes how the Code and courts must adapt to this new financial technology to avoid institutional failure. This Comment first explains the DAO structure while exploring the current DAO legal landscape, including classifications of membership tokens as either securities or digital assets. Then, this Comment discusses whether a DAO could even file for bankruptcy, and considers what that process may entail. Next, this Comment examines specific DAO-related issues in bankruptcy pertaining to service, liability, transfers, and property. Finally, this Comment considers the bankruptcy challenges that DAOs must overcome when registered in various entity forms.
Recommended Citation
Ryan Levin,
Bankrupting the Matrix: DAOs and the Code,
40
Emory Bankr. Dev. J.
455
(2024).
Available at:
https://scholarlycommons.law.emory.edu/ebdj/vol40/iss3/6