Australian Senate Serious About Digital Assets

On 27 August, I gave evidence before the Australian Senate’s Select Committee on Australia as a Technology and Financial Centre (transcript here).

In concert, blockchain, digital assets and smart contracts can deliver guaranteed outcomes participants can live with, instead of perfected rights no one can enforce. These benefits best come – if at all – from allowing strangers to co-ordinate through code and market forces, rather than through intermediaries. But our laws consistently require both intermediaries and identification, often making truly decentralised projects illegal or infeasible.

Adjusting our laws to invite the good projects while keeping out the bad is not easy. Systems that anyone can use, nobody owns, and everyone polices straddle so many legal concepts and offend so many regulatory norms. It’s rather like a Rubik’s cube – solving one facet puts all the others out.

Out of the vast universe of tweaks that should be investigated, I highlighted four:

  1. Clarify the nature of the legal relationship between participants in genuinely decentralised blockchain ecosystems. As far as possible, limit their liability and recourse to the code they have chosen to trust.
  2. Find an acceptable mechanism for formal recognition of DAOs, or code-governed entities. Entities with suitable coded constitutions shouldn’t need boards or member registers.
  3. Confirm the tax-exempt status of Not-for-Profits that act as the curator of a genuinely decentralised blockchain ecosystem. This is our competitive advantage with Singapore.
  4. Embrace private stablecoins in lieu of CBDCs. Ensure digital asset projects create compliant digital representations of Australian dollars to move about their ecosystem.

To the Committee’s credit it indicated a willingness to investigate creating a legal space for DOAs. In a summary of the hearing, Senator Bragg noted:

The Committee noted, however, that a new corporate form like in Wyoming is a regulatory dead end in Australia. Australia has undergone a herculean effort to wrangle a single, consistent Corporations Act applying throughout Australia and amendments to this regime involve unavoidably lengthy and complex negotiations between all States and the Commonwealth.

The Committee challenged the panel to develop DAO proposals that do not rely on a new corporate form.

This is a welcome and worthy challenge! The Committee is to be applauded for recognising the need for a legal space for DAOs, despite the challenges to creating new corporate forms in Australia.

In truth, DAOs probably should not be new corporate forms. I argue they are best viewed as a special class of unincorporated joint ventures. Laws that imbue genuinely decentralised code-governed communities with special rights, liabilities and privileges offer a mechanism for resolving much of the friction between the law and cryptographically-mediated peer-to-peer relationships.

Stay tuned for more as the proposal takes shape…

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