ADGM’s New DLT Foundations: A Game-Changer for DAOs and the UAE Crypto Industry

Introduction

Abu Dhabi Global Market (ADGM) has recently published a consultation paper on its proposed Distributed Ledger Technology (DLT) Foundations Regulations 2023, aiming to create a tailored legislative framework specifically designed for Decentralized Autonomous Organizations (DAOs). The proposed regulations are poised to revolutionize the legal structures for DAOs and fuel the growth of the crypto industry in the UAE.

Background

DAOs, with their focus on decentralization and automation, have emerged as the preferred governance structure for DLT-based projects. However, such governance structures lack a recognized legal status unless they adopt a pre-existing legal form for their operations. Foundations have become the most popular legal wrapper for DAOs, particularly those in the Cayman Islands, Panama, and Switzerland. However, most existing foundation regimes pre-date the advent of DAOs, leading to certain roadblocks concerning decentralized and transparent governance.

The Need for a Tailored Legal Framework

As the UAE emerges as the crypto capital of the world, there is an increasing need for a legal framework that accommodates the unique requirements of DAOs. The ADGM consultation paper addresses these challenges by proposing a new legislative framework, which includes several key features:

• Creation of a standalone DLT foundations framework.
• Providing DLT foundations with separate legal personality.
• Allowing DLT foundations to engage in any activity that is not illegal or contrary to public policy.
• Covering governance, tokens, token holder voting, reporting, disclosures, beneficial ownership, supervision, and liquidation.

The proposed regulations aim to overcome the limitations of traditional foundation structures, ensuring transparency and accountability, and boosting investor confidence in the industry. A copy of the consultation paper can be accessed here.

Cavenwell Response

As a leading Web 3 corporate services provider and expert in the establishment of DAO structures internationally, Cavenwell will be providing a response to the consultation paper. We are committed to supporting the growth of the DLT industry and assisting clients in navigating the complexities of DAO legal structures in the ever-evolving global regulatory landscape.

Implications and Future Outlook

The proposed DLT Foundations Regulations 2023 represent a significant step toward creating a clear regulatory framework that encourages innovation and supports the growth of the DLT industry. By offering a tailored legislative solution for DAOs, ADGM is positioning itself as a pioneer in the crypto space and a leading jurisdiction for the establishment of DLT foundations.

In conclusion, the ADGM’s proposed DLT Foundations Regulations have the potential to be a game-changer for DAOs and the broader crypto industry. By providing a more suitable legal structure for DAOs, the new regime could further catalyze the growth of the UAE as a leading crypto hub and set a precedent for other jurisdictions to follow.