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

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TL;DR Breakdown

  • Several core members of a well-known Decentralized Autonomous Organization in China have been arrested for issuing tokens within the DAO and incentivizing members, leading to a police investigation.
  • Liu Honglin, the founder of the ManKun Law Firm, identifies two main areas of potential criminal legal risk for DAOs in China: illegal issuance of securities or illegal fundraising during the fundraising phase, and pyramid selling due to the structure of some DAOs.

 

Description

In a recent development, several core members of a well-known Decentralized Autonomous Organization (DAO) in China have been arrested. The news, shared by the Twitter account (@wublockchain12), indicates that this could be the first instance of a Decentralized Autonomous Organization being implicated in criminal activity within the country. The members were arrested for issuing tokens … Read more

In a recent development, several core members of a well-known Decentralized Autonomous Organization (DAO) in China have been arrested. The news, shared by the Twitter account (@wublockchain12), indicates that this could be the first instance of a Decentralized Autonomous Organization being implicated in criminal activity within the country. The members were arrested for issuing tokens within the DAO and incentivizing members, actions that have led to a police investigation.

Liu Honglin, the founder of the ManKun Law Firm, has weighed in on the situation. He believes that the development of Decentralized Autonomous Organizations in China carries potential criminal legal risks, primarily in two areas.

Fundraising and Securities

The first area of concern is the fundraising phase. The act of raising funds could potentially be construed as illegal issuance of securities, illegal fundraising, financial fraud, or even pyramid selling. This is a significant concern as Decentralized Autonomous Organizations often raise funds through the issuance of tokens, which could be seen as securities under certain legal frameworks.

The second area of concern is related to the structure of some DAOs. Some Decentralized Autonomous Organizations, in an effort to expand their influence, adopt a model that rewards members for recruiting others. This structure, according to Liu, could potentially be seen as pyramid selling, a practice that is illegal in many jurisdictions, including China.

The Implications for DAOs in China

This development could have significant implications for the future of Decentralized Autonomous Organizations in China. The arrest of these core members and the subsequent investigation could lead to increased scrutiny of DAOs and potentially stricter regulations. This could stifle the growth of DAOs in the country and limit the potential benefits they could bring.

While this development is specific to China, it could have global implications. Other countries may look to China’s handling of this situation as they develop their own regulations around DAOs. This could lead to a global tightening of regulations around DAOs, potentially limiting their growth and development.

The Future of DAOs

Despite these challenges, many in the crypto community remain optimistic about the future of Decentralized Autonomous Organizations. They argue that Decentralized Autonomous Organizations offer a new way of organizing and governing, one that is more democratic and transparent than traditional models. However, as this situation in China shows, there are still many legal and regulatory hurdles to overcome. The future of DAOs will likely depend on how these challenges are addressed, both in China and around the world.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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