News & Development

RAK DAO introduces comprehensive DAO Regulations INTRODUCTION Decentralized Autonomous Organizations (“DAOs”) have de facto existed within the blockchain and digital asset space for some time, driving innovation and decentralized governance. However, these entities were largely bereft of legal recognition, operating in a regulatory void without a defined legal personality. As a result, DAOs have been unable to fully realize their potential within traditional legal frameworks, lacking the legal standing typically afforded to corporate entities. With the introduction of the DAO Association Regulations (“Regulations”) by the Ras Al Khaimah Digital Asset Oasis Authority (“RAK DAO” or “Authority”), DAOs can now establish themselves as formal corporate entities within the RAK DAO region. This legal framework grants DAOs legal sanctity by adding features such as structural clarity, governance mechanisms, and enhanced accountability. These provisions allow DAOs to operate more effectively within the traditional legal system, while still retaining the digital, decentralized characteristics that define their unique operational model. A brief summary of the Regulation is provided as below-mentioned: What is the legal structure of a DAO under the Regulations? The legal personality of a DAO, once incorporated under the Regulations, is that of a body corporate with its own name and distinct legal existence from its members and token holders, and is regarded as a DAO Association. From the date of incorporation, a DAO is capable of exercising all functions of an incorporated entity, entering into legally binding obligations, acquiring and disposing of assets, and bearing its own liabilities. Under the current regime, two categories of DAOs have been envisaged, i.e.,  Alpha DAO Association; and  Start-up DAO Association.  It is yet to be notified what shall constitute the parameters to be considered for a DAO to fall under either of the categories, however, a brief distinction can be made on the following basis: What all categories of members a DAO has?  Under the scope of the Regulations, a DAO essentially has three categories of members: (i) Founding members- who are responsible for the incorporation of DAO; (ii) Council members- who are responsible for overseeing the operations and taking final decisions by voting for the DAO; and (iii) Governance Token Holders- who are responsible for taking internal decisions for the DAO including appointment of council members. What all categories of members a DAO has?  Under the scope of the Regulations, a DAO essentially has three categories of members: (i) Founding members- who are responsible for the incorporation of DAO; (ii) Council members- who are responsible for overseeing the operations and taking final decisions by voting for the DAO; and (iii) Governance Token Holders- who are responsible for taking internal decisions for the DAO including appointment of council members. How can a DAO be formed?  Any application may be made for incorporation of a DAO and registering it as a DAO Association under the Regulations by providing the documents and information required under Clause 9 of the Regulations, which broadly includes:  Founding Members: At least two Founding Members must apply for the incorporation of the DAO, and provide necessary documents in relation to them and furnish the Guarantee as prescribed by the Registrar.  Essential Information: The application shall include inter alia the following details: The proposed name and nature of activities of the DAO. Governance structure, including decision-making rights and dispute resolution mechanisms. Details of the Founding Members (both natural persons and corporate entities), along with the roles of key individuals such as Council Members and Managers. Information on the DAO’s token mechanisms, treasury management policies, and the use of smart contracts. Compliance and Business Plan: The application must also include a business plan and a compliance note, confirming adherence to the Regulations and that the DAO will operate within the scope of its intended activities and trade license. Can a DAO issue tokens?  A DAO registered with the Authority can issue a new class of tokens after submitting a white paper (or equivalent document) to the Registrar, outlining the structure and characteristics of the proposed tokens, including distribution, vesting, supply, and utility or governance features. Additionally, the DAO must provide a legal opinion confirming that the token complies with all applicable UAE laws, does not qualify as a security token under UAE federal law, and that the DAO’s activities comply with relevant regulations. A cybersecurity audit of the smart contracts related to the operation or distribution of the tokens is also required, along with any other documents the Registrar may prescribe.  How will a DAO be governed ?  Internal Constitution The DAO shall have its own constitution, Memorandum of Association and DAO Association register which shall govern the internal governance and shall be approved by the Registrar.  Governance token holders The rights  and duties of the members of the DAO shall be conferred on the basis of the governance token holding. The holders of the governance tokens of the DAO shall the rights related including but not to implementation and amendment of Smart Contracts, election and removal of Council Members, appointment of Alternate Council Members, approval of Governance Proposals without a General Meeting, appointment of a Manager or Registered Agent (if not a Startup DAO), amendment of the Constitution, and voting rights of Governance Tokens. The governance token holders are also entitled to initiate any proposal which may relate to the subjects envisaged under the constitution of the DAO and may include initiation of a new project, termination of an existing project, manage of funds, protocol development, etc.  Council Members Council members shall convene a general meeting at the request of any governance token holder eligible under the constitution to take up a governance proposal.  Can a DAO issue tokens other than governance tokens? Yes, a DAO can also issue miscellaneous tokens which can relate to operations, administration, provision of service or maintenance of DAOs. Striking off and Winding Up.  The registrar may strike off the name of the DAO from the register for the reasons provided in the Regulation. The DAO registered with the Authority may also choose to voluntarily wind up

The White House General Framework on Digital Assets: A Quick Breakdown The “First-Ever Comprehensive Framework for Responsible Development of Digital Assets,” which encompasses a joint fact sheet on six key directives formulated by federal agencies for cryptocurrency regulations in the nation, has been released by the American government. The framework pertains to an executive order the president issued in March calling for several U.S. government entities to develop a trajectory on cryptocurrencies and present their findings. Thus, it summarizes the content of nine separate reports submitted to the president to articulate a comprehensive framework for developing effective digital assets that would enable U.S. firms to get a footing in regional and international markets. Similar to the executive order, the “Comprehensive Framework” does not establish any new legislation but offers a clearer picture of U.S. cryptocurrency regulation. Nonetheless, the current regulators, like the Securities and Exchange Commission and the Commodity Futures Trading Commission, are harnessed for resilience by the new directives. They have been encouraged to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.” The fact sheet, which was published on the official website of the White House on September 16, 2022, is categorized into seven sections: (1) Protecting Consumers, Investors, and Businesses; (2) Promoting Access to Safe, Affordable Financial Services; (3) Fostering Financial Stability; (4) Advancing Responsible Innovation; (5) Reinforcing Our Global Financial Leadership and Competitiveness; (6) Fighting Illicit Finance; and (7) Exploring a U.S. Central Bank Digital Currency (CBDC). Although the framework is extensive, it does not address the cryptocurrency market’s fundamental question, as reinforced by CoinDesk—what exactly qualifies a crypto token as a security, and which should be subject to commodity regulation? Here are some of the significant points in Biden’s framework, which does examine the central bank’s digital currency to cryptocurrency innovation. Firstly, it is essential to recognize that the division of regulatory responsibilities has not been done because the government wants to consider the entire spectrum. Digital assets “offer significant opportunities to reinforce US leadership in the global financial system and remain at the technological forefront,” according to the Biden Administration. This statement only highlights how challenging it is to change the perspectives of some elected officials and other decision-makers who have a clear animus toward the developing digital asset ecosystem. Safeguarding Individuals and Companies The framework considered the rising annual financial losses from digital assets, preparing to take action against the cryptocurrency market’s high volatility, noting a 2018 Wall Street Journal article regarding disclosure and transparency issues with offerings of digital assets. These strategies include strengthening efforts to monitor complaints, conducting investigations and enforcement against illegal actions “aggressively,” and providing assistance to deal with current and emerging risks. To ensure that each agency’s initiatives are as successful as possible, they will be urged to share their data on consumer complaints involving digital assets. Finally, to foster more rational decisions and investments in cryptocurrencies, the Financial Literacy Education Commission (‘FLEC’) will raise public knowledge of the risks associated with digital assets and how to mitigate them. Combating Illicit Finance The escalating unlawful activities occurring in the industry are highlighted in the White House’s new framework. The measures suggested to halt them seem to have an effective force of power. The administration enforces stringent security measures, amending the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmission to explicitly apply to companies that provide services for digital assets, including exchanges and platforms for nonfungible tokens. The government intends to monitor the progress of cryptocurrencies, examine them, and make any necessary adjustments. The president has urged Congress to raise the penalties for unauthorized money transmission and to amend specific federal legislation such that the Department of Justice may pursue cases involving digital assets in any jurisdiction where a victim of those crimes is discovered. Additionally, Biden directed the Treasury to complete an assessment of the decentralized financial sector concerning illicit finance by the end of February 2023 and an evaluation of NFTs by July 2023. Ensuring Financial Stability The framework makes mention of stablecoins’ potential for instability and warns that, without the right regulation, they might lead to disruptive runs. The White House fact sheet states, “Digital assets and the mainstream financial system are becoming increasingly intertwined, creating channels for the turmoil to have spillover effects.” The Treasury will coordinate with agencies to analyze new strategic risks, the administration said, and engage with financial institutions to optimize their ability to evaluate and address cybervulnerabilities. These initiatives will also be coordinated with international allies, such as the Financial Stability Board and the Organization for Economic Cooperation and Development (‘OECD’). The Financial Stability Oversight Council (FSOC) is anticipated to release a study in October that examines the risks to financial stability posed by digital assets and identifies any corresponding regulatory gaps. Exploring a U.S. Central Bank Digital Currency The framework asserts that the digital currency issued by the U.S. central bank (CBDC) “may enable a payment system that is more efficient, offers a foundation for further technical innovation, facilitates speedier cross-border transactions, and is ecologically friendly.” According to the White House, an official digital currency could increase financial inclusion, protect from cyber vulnerabilities, and reduce the risks associated with illicit financial transactions. It should be noted that there are various forms of digital US dollars, ranging from the electronic US dollars found in commercial institutions to the abundance of stablecoins that are pegged to the USD. The Federal Reserve’s version of a CBDC is the hypothetical digital dollar. It is essentially the digital equivalent of the U.S. Dollar, fully regulated by a central authority and supported by the nation’s central bank. The report continues, “It could promote financial inclusion and equity by enabling access for a broad set of consumers.” The framework outlines the government’s policy objectives for a U.S. CBDC system, but the administration has urged the Federal to continue its current analysis, trial, and evaluation of a CBDC.“To support the Federal Reserve’s efforts and to advance other work on a