Carla L. Reyes
87 Geo. Wash. L. Rev. 373
The Ethereum Decentralized Autonomous Organization (“The DAO”), a decentralized, smart-contract-based investment fund with assets of $168 million, spectacularly crashed when one of its members exploited a flaw in its computer code and siphoned off $55 million. In the wake of the exploit, many argued that participants in The DAO could be jointly and severally liable for the loss as partners in a general partnership. Others claimed that The DAO evidenced an entirely new form of business entity, one that current laws do not contemplate. Ultimately, the technologists cleaned up the exploit by restructuring the computer code, and without engaging in any further legal analysis, many simply concluded that The DAO, other decentralized autonomous organizations, and the Ethereum protocol itself signify opportunities to do away with legal business-organizational forms as they presently exist. In this Article, I argue that precisely the opposite is true. Instead of creating a new type of corporate entity through computer code, The DAO and other smart-contract-based organizations may resurrect a very old, frequently forgotten business entity—the business trust—which Rockefeller used to solve the technology–business organization law divide of his time.
This Article offers the first analysis of blockchain-based business ventures under business organization law at three separate levels of the technology: protocols, smart contracts, and decentralized autonomous organizations. The Article first reveals the practical and theoretical deficits of using partnership as the only common-law entity option for blockchain-based business ventures. The Article then demonstrates that incorporation and limited liability company (“LLC”) formation will also pose both practical and doctrinal difficulties for some such businesses. When faced with a similar conundrum in the 19th century, Rockefeller turned to the common-law business trust as a substitute business entity. This Article argues that if Rockefeller were a coder building a blockchain-based business, he would again turn to the business trust as his choice of entity. The Article concludes by considering, in light of Rockefeller’s history, whether the law should anticipate any challenges with the rise of blockchain-based business trusts.
