Several key members of a Chinese decentralized autonomous organization (DAO), a well-known institution in the blockchain industry, have been arrested on suspicion of criminal activity, representing a significant setback for the emerging technology. The main accusations are the issuance of altcoins within the DAO as part of a membership incentive system, which may be China’s first criminal violation involving a DAO. Here are the details…
Arrests draw attention in China’s altcoin ecosystem
This momentous event prompted the Mankiw Lawyer Team to conduct extensive research to uncover the truth and increase legal compliance in the industry. For many Blockchain practitioners, DAOs symbolize an ideal society with a free spirit, unlimited collaboration, and distribution by business. However, this case highlighted overlooked legal risks, especially those involving criminal offences. Known for their decentralized operation models, DAOs allow members to participate in the decision-making process transparently without any central authority. However, some DAO operations involve legal and criminal hazards.
吴说获悉，据曼昆区块链，国内某知名 DAO 组织多名核心成员在国内多地同时被抓。因其在 DAO 组织内部发行 Token，进行成员激励等行为而该被警方立案侦查，这可能是目前国内首个涉嫌刑事犯罪的 DAO 组织。
曼昆律师事务所创始人刘红林认为，在中国 DAO…
— 吴说区块链 (@wublockchain12) July 29, 2023
Primarily, fundraising practices, which may involve the sale of community points or NFTs, can be criminal, including fraudulent financial transactions, illegal issuance of securities, and pyramid scams. DAO tokens often serve multiple purposes such as fundraising, voting rights, and income-based payments, all of which may be considered illegal under Chinese law from time to time. Second, there are additional legal hazards due to the decentralized, international character of DAOs. Some DAOs use a head-butting approach with rank-based rewards to increase their effectiveness. These practices resemble pyramid schemes, which are illegal in China.
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The legal dangers facing DAO groups in China have become quite apparent as a result of this episode. It serves as a reminder to the industry of the importance of compliance and regulation to ensure the long-term development of DAOs and the larger Blockchain business. Regardless of China, DAOs are also on the agenda for regulation in many countries. UNI, ICP, LDO, ARB are shown for the most popular DAO coins. Also, MKR, AAVE, SNX, APE are among the major DAO coins.
As a result, the recent arrest of key members of China’s leading decentralized autonomous organization (DAO) cast a shadow of uncertainty over the future of Blockchain technology. While DAOs are acclaimed for their decentralized and transparent decision-making processes, they are not exempt from regulatory scrutiny. Fundraising practices involving token issuance and community points can inadvertently lead to fraudulent financial transactions or illegal issuance of securities. Moreover, the international nature of DAOs often presents additional legal complexities similar to pyramid scams, which are strictly prohibited in China. As the Mankiw Attorney Team explores the issue to promote regulatory compliance in the industry, this incident sharply reminds us of the imperative need for clear guidelines and robust regulation to enable DAOs to grow.
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