SEC Should Treat DAOs As 'Dispersed Groups of People,' Say DeFi Education Fund, Uniswap

The DeFi Education Fund and Uniswap Foundation have urged the U.S. Securities and Exchange Commission to view decentralized autonomous organizations as disparate groups of individuals rather than coordinated entities.

DAO Ecosystem Needs Clarity

The United States Securities and Exchange Commission (SEC) should treat decentralized autonomous organizations (DAOs) with decentralized control over network governance “as nothing more than disparate and dispersed groups of people.” Adopting this and other recommendations provides much-needed clarity to the DAO ecosystem.

In a letter addressed to the SEC’s Crypto Task Force Staff, the DeFi Education Fund (DEF) and Uniswap Foundation also urged the Commission to recognize that such DAOs are not an “identifiable and coordinated group of ‘others’ undertaking efforts for the purposes of the ‘efforts of others.’”

The two organizations assert that any guidance or staff statement issued by the Commission’s task force should formally recognize these principles, as outlined in their May 27 letter. DEF and Uniswap Foundation’s 13-page joint letter follows the Crypto Task Force’s request for crypto industry comments on matters including those critical to DAOs.

Led by crypto-friendly Commissioner Hester Peirce, the crypto task force is seeking to draw clear regulatory lines and “appropriately distinguish” securities from non-securities, among other things. The task force hopes the feedback from stakeholders will be incorporated into the SEC’s new guidance.

According to the joint letter, the SEC’s prior statements on DAOs lacked clarity, which left the public without meaningful guidance. Therefore, to preempt the Commission from repeating the same mistake, DEF and Uniswap Foundation’s letter addresses questions raised by Peirce relating to criteria used to evaluate decentralized networks.

For instance, the letter explains why the SEC must dispense with its present approach of characterizing DAO members as active participants.

“[The] Commission should instead focus on the existence of dispersed control over the governance of a network or protocol, rather than the ongoing efforts of developers or other identifiable groups as active participants,” the joint letter states.

On the question of whether the delegation of voting rights undermines dispersion of control over a network, the joint letter argues that such delegation, in fact, enhances dispersion. It boosts participation by allowing token holders to permissionlessly assign their voting power to others, even if they lack the time or expertise to vote directly. Furthermore, the joint letter argues that the delegation of votes helps to minimize inadvertent centralization of control.

Meanwhile, besides the request for comments, Peirce’s task force has been holding a series of roundtables on various topics, with the next one on decentralized finance (DeFi) set for June 9. In February, Peirce issued a questionnaire asking for input on various crypto issues, including security status, broker-dealer custody, investment advisor requirements, and crypto lending programs.