Crackdown on DAOs in China: A Closer Look at the Legal Implications

August 1, 2023

By Sharan Kaur Phillora

Chinese authorities have taken the unprecedented step of arresting several core members of a well-known Decentralized Autonomous Organization (DAO), signaling a potential legal turning point for DAOs within the country. 

Here’s what we know:

The incident was first reported by Twitter user @wublockchain12, marking the first instance of DAO members being implicated in criminal activities in China. The arrests were made for issuing tokens and incentivizing members within the DAO.

Liu Honglin, the founder of the ManKun Law Firm, has expressed that the growth of DAOs in China carries substantial legal risks, mainly in two key areas:

Fundraising and Securities: Raising funds through token issuance can be seen as illegal issuance of securities, financial fraud, or even pyramid selling.

DAO Structure: Some DAOs’ reward structures for recruiting others can be viewed as illegal pyramid selling, which is strictly prohibited in China.

The implications of this development extend beyond the borders of China. The crackdown may lead to greater scrutiny and potentially stricter regulations, stifling the growth of DAOs within the country. Other nations may also follow China’s lead, resulting in a global tightening of DAO regulations.

Despite these challenges, supporters within the crypto community remain hopeful about the future of DAOs. They tout the benefits of a more democratic and transparent organizational model. 

However, the situation in China exemplifies the legal hurdles DAOs must overcome, both nationally and globally. The future of DAOs will be shaped by how these challenges are met, potentially affecting their growth and development worldwide.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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