Decentralized Autonomous Organizations and Regulatory Competition : A Race Without a Cause

Several states have enacted specialized limited liability company (LLC) legislation in an attempt to attract decentralized autonomous organizations (DAOs). In this way, the regulatory competition debate surrounding states such as Wyoming, Tennessee, and Vermont, attempting to dethrone Delaware, has found a new battleground. According to Professor Lynn LoPucki, this will entail a regulatory race to the bottom, that is, a race to “laxity.” I disagree. In fact, deregulation has already been achieved in the traditional LLC form. The DAO LLC is not any laxer or more attractive to investors, who will likely prefer the traditional LLC, or even decide for other entity forms, given the diversity of investors’ needs and aims. Moreover, some DAO organizers may wish not to incorporate at all, hoping to avoid the law altogether. This strategy, while increasingly risky, rests on the belief in the alegality liability shield, further diminishing the impact of the lex specialis approach. After analysing the statutory developments and the scholarly and industrial commentary, I conclude that in DAOs as elsewhere, the regulatory race to the bottom is a fad