Crypto looks to the Caymans

With the help of Derek Robertson

One of the most transcendent corners of the crypto world suddenly becomes corporate.

Last week, SushiDAO, the group that controls popular cryptocurrency exchange SushiSwap, voted to transform itself into a complex new corporate structure that is more creative: an interconnected two-fund group and a corporation based in Panama and the Cayman Islands.

For anyone following the development of the DAO, this is what they should have prevented or at least replaced: Their decentralized structures and collective management were designed to change the entire landscape of traditional corporate ownership and control.

But in recent times, DAOs have come under more stringent legal scrutiny, and SushiDao’s tropical re-registration is tantamount to giving in to that reality.

While DAO proponents claim they are a new type of group that must play by new rules, regulations and plaintiffs’ lawyers do not always agree. AT some cases they started trying to prove that some of them were just engaging in unauthorized financial activities and that their members were responsible for anything that went wrong.

As a resulta cottage industry has emerged to register DAOs in the same tropical jurisdictions long favored by traditional corporations.

DAOs are blockchain-based groups that often delegate voting rights to crypto token holders in a manner that is roughly analogous to the voting rights of corporate shareholders. Theoretically, they could change the way people approach everything from fighting climate change to space exploration by allowing large groups to coordinate their activities online without any central oversight. At least that’s what their supporters say.

In practice, many DAOs today remain under the effective control of small groups of founders, and the largest of them tend to operate in the mundane world of finance.

After the spring collapse of the crypto market the focus of many founders has shifted from revolutionary finance to tackling their own legal risks. For some DAOs that started out in the digital equivalent of their founders’ garages—with a Discord chat and a specially issued crypto token—signified registration as an old-fashioned corporation.

As the CFTC became the first regulator to sue the entire DAO last month, alleging it failed to comply with commodity trading laws, scramble to register According to Nicholas Saadi, a blockchain lawyer at Pryor Cashman, the process has accelerated as DAO members have realized they are in uncharted legal waters.

The lawsuit raised the possibility that legal issues could affect not only the founders but also anyone who bought or voted with the group’s governance tokens, highlighting the urgent need for liability protection.

“It is difficult for a DAO member to understand when, how, for what behavior, or under what legal theory, he can be held accountable,” Saadi wrote in an email.

While hundreds of self-proclaimed DAOs registered in Wyoming since the state created a special category for them last year, many others are moving to favorite offshore jurisdictions such as Panama and the Cayman Islands. (SushiDAO sets up objects in both.)

Some DAOs have been attracted, in particular to a unique legal entity offered in the Caymans called a parent company because it offers an ownerless legal structure. But the legal protection that corporations can offer DAOs remains untested.

And while American founders may run from regulators, they can’t hide for long.according to Max Dielendorf, a New York-based cryptocurrency lawyer.

Dielendorf said that long before there was a cryptocurrency, US regulators proved they could break through the offshore corporate shells used by US tax evaders. Similarly, he said that if U.S. regulators get involved with offshore DAO funds, they can show that many of them remain under the effective control of the founders, who could be held accountable for the activities of the DAO.

“When I hear ‘Panama DAO’, I’m like, ‘OK, right?'” he said. “This structure will not survive the opening phase.”

Dielendorf said his skepticism was heightened after he saw a letter of commitment drawn up by law firms offering offshore DAO registration services. According to him, there were no guarantees in the letters that these structures would pass the review by US regulatory authorities.

“What do you guarantee as lawyers? Nothing,” he said. “It doesn’t look like they’re going to have to deal with the Justice Department if something goes wrong.”

In this fact sheet, we talk about the EU approach to technical regulation and role in the global struggle for technological superiority. But how do they fit together—and what does that mean for politicians and political leaders trying to control these industries around the world?

BUT recently published study A group of Oxford researchers is trying to answer these questions by comparing the approaches of the EU and China to the ethics of AI. The researchers note that since, of course, Western and Chinese conceptions of “ethics” and value systems are very different, valuable lessons can be learned from seeing where the two systems do not overlap and what each has to offer the other. .

One important takeaway: Both systems are ill-equipped to incorporate user and community feedback, which many AI researchers and ethicists believe is necessary to minimize harm.

The researchers cite the involvement of heavy industry in shaping the EU AI Law and, conversely, China’s “limited interest group ecosystem”. They mandate an experiment with “AI-powered citizen gatherings that represent the diversity of China and the EU, respectively,” citing projects such as the UK Citizens Council on Biometrics which provides training for ordinary citizens on how to think about the use of new technologies in everyday life. — Derek Robertson

While the EU may have stronger regulatory power over Big Tech bridles than the US, it’s not entirely without cooperation from the industry they’re trying to rein in.

And nowhere is this more evident than in the nascent EU rules for AI, which is beginning to worry some activists and technologists such as POLITICO’s Clotilde Goujart and Gian Volpicelli. reported today for Pro subscribers.

As they write, the industry is involved in design and to some extent inevitable, with the AI ​​Law “lean manufacturing”.[ing] in industry forums such as CEN-CENELEC as well as GIVE UPto outline the technical guidelines that enable AI systems to learn from objective data and ultimately determine how much human supervision is needed.”

Standards groups such as those mentioned have been important brokers with government and industry to make sure rules are put in place in a way that simply has the meaning technically, without “favoring” either side. But as Clotilde and Jahn report, many researchers are skeptical that ethics will outweigh simple financial considerations when deciding what the standards for AI should be.

As Michael Veal, Associate Professor of Digital Rights and Regulation at University College London, put it bluntly: AI is simply too complex and powerful “to be fixed by a piece of legislation that treats it like a toy, a radio or a piece of protective equipment.” — Derek Robertson

Stay in touch with the entire team: Ben Schrekinger ([email protected]); Derek Robertson ([email protected]); Steve Hueser ([email protected]); as well as Benton Ives ([email protected]). follow us @DigitalFuture on Twitter.

Ben Schrekinger writes for POLITICO on technology, finance and politics; he is a cryptocurrency investor.

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