Meet our Guest with Joni Pirovich
Image: Portrait of Joni Pirovich.
There are few people as synonymous with the Australian blockchain community as Joni Pirovich. With a background in tax law, she’s a leading thinker – and advisor – on frameworks for legal recognition of Distributed Autonomous Organisations (DAOs) globally. Joni is also the ‘creator spirit’ of LawFi DAO, of which Guest Work Agency is a member. For this edition of Meet our Guest, our Director and Founder, Alana Kushnir spoke to Joni about LawFi DAO and its ambition to improve the law’s relationship with blockchain technology.
First of all, what is a ‘creator spirit’?
Lol, it’s a term I’ve come up with because founder wasn’t quite right. Whilst I’m the one that articulated the concept of LawFi DAO, wrote the draft whitepaper and did the admin around set up, all the knowledge it took to do those things was based on years of being in the community and reflecting the many contributors to the knowledge imparted to me.
It is with that ‘spirit’ that the purposes of LawFi DAO were defined as things not just important to me but important to the community that I am a part of. Whilst I am volunteering as a steward to advance the LawFi DAO purposes, the ‘spirit’ is something that can live on through many more people than just me and in many other DAOs. The DAO is just a form of coordination using open-source digital tools so that the organisation can be found and joined easily and can integrate with latest and best tooling being built by and for the blockchain-based ecosystem.
You began your legal career in the PwC international tax team in Melbourne. You now run your own boutique practice, BADAS*L – Blockchain & Digital Assets - Services + Law. Why did you make the move to go it on your own?
BADAS was born in 2021 as a side hustle to my then day job (an employed Australian lawyer advising on web3 projects) to provide ‘hands on’ educational workshops to professionals advising in and around blockchain projects. The problem I was seeing was that professionals cannot competently advise in this area if they do not understand the technology, and understanding is best gained through use of the technology.
During 2022, I was being approached by other law firms to either lead their web3 matters or a bespoke web3 practice group or contribute to training their lawyers. To assist many law firms rather than just one it made sense to register BADAS as an Australian law firm, and so BADAS became BADAS*L (pronounced either bedazzle or badass-elle (a cypher punk play and nod to Elle Woods in Legally Blonde), I don’t mind). In this way, I feel BADAS*L’s influence and impact is greater through work with many law firms rather than concentrating the market towards BADAS*L alone as a siloed empire of many web3 clients.
For those in our audience who may be less familiar with DAOs, can you give us your go-to explanation?
Very simply, a DAO is a group of humans that coordinates around a common purpose or activity using open-source digital tools rather than paper-based tools.
Use of paper-based mechanisms to incorporate and run a company (e.g. a constitution, shareholder agreements, employment agreements, process manuals and policy documents) often requires legal assistance to interpret and enforce rights. Such interpretation and enforcement arguably imposes a higher cost to society and the organisation compared to the real-time compliance and public transparency available from open-source digital tools.
There is a transition process and cost to understanding and feeling comfortable to shift from reliance on paper-based mechanisms and existing legal frameworks to real-time digital tools, and not all business processes can or have been automated. As such, DAO behaviours can occur off-chain and lack the transparency expected of DAOs and digital tools which can introduce hesitancy of adoption of the DAO structure.
You’re affectionately known as the ‘Queen of DAOs’. Can you give us an example of how you’ve worked with a DAO, what were some of the challenges faced by the DAO and what was your role in addressing those?
The affection runs both ways – I care about protecting the innovation that I think blockchain technology can bring to the world.
One day is never the same as the next when working with DAOs, emerging technology, legals and web3 policy. They key challenge is keeping up with latest developments to credibly advocate for and protect the good innovations that DAOs are bringing to the world. Keeping up is crucial to understanding how best to advise clients and policy makers that are navigating the application of existing laws, where there are uncertainties worthy of law clarification or where policy leadership and law reform is required.
Unlike traditional legal services where a template legal document can be used repeatedly and tailored to the business client’s circumstances, I am constantly modifying the template documents I use as the digital tools evolve, as new legislation is introduced and as we learn about behaviours of concern through project failures and enforcement actions around the world.
Right now, several DAOs have used a legal wrapper (often in the Cayman Islands, Panama or the British Virgin Islands) to issue their governance tokens. Secondary market trades and exchanges of the governance token are typically not ‘wrapped’ within the legal wrapper nor clearly within the oversight or governance of the DAO, whereas participation incentives often paid in governance tokens are seen as a crucial part of DAO oversight and governance. This set of circumstances has effectively left a gap which is claimed to pose a risk to the integrity of traditional financial markets and the crypto ecosystem, and which policymakers and regulators are rightly concerned about. However, regulators and policymakers are typically equipped only with their knowledge of traditional non-digital entities and existing securities laws to intervene in conduct that is either bad or has the potential to harm consumers and investors. There are potentially digital methods and digital tools better equipped to deal with specific harms and concerns than existing forms of regulation.
A key challenge faced by DAOs is educating policy makers and regulators why and how the technology offers protections equal or superior to existing consumer and investor protections and why those regulatory advances are worth protecting if they achieve the same outcome in a different way.
In the LawFi DAO white paper you write, “[t]here is reluctance and fear in the market to use DAOs or be involved with them because of the legal and tax uncertainty of launching and operating a DAO. Why should the market be limited in choice to recognised legal and tax structures where the law has not kept pace with the speed of innovation?” What were your motivations in starting LawFi DAO, and who did you start it with?
LawFi DAO was formally brought into existence with me and two others that agreed to take on roles as Vice President (Vic Wells) and Treasurer (Shane Mays). Informally, LawFi DAO was launched by video call with 60 of the people that have contributed knowledge and support to me and the advancement of web3.
A key motivation for starting LawFi DAO was education. Education about why the market should be allowed to start and run an organisation using digital tools and the basis to afford such organisations with distinct legal personhood and limited liability as well as safeguards that promote responsible experimentation with the technology’s capabilities.
With globally transferable tokens and the programmability offered by smart contracts, which we will continue to see in stablecoin and CBDC applications, the speed with which value can be moved is increasing without traditional intermediaries and reconciliation delays.
Where the speed of money and value transfers is increasing, most recently evidenced by the fast-falls of 2022 (UST-LUNA and FTX) and the bank collapses we’ve seen in early 2023 (Silvergate Bank, Silicon Valley Bank, etc), so too is the need for speed of sensible policy making both in organisations and in governments.
The real-time sharing of information results in real-time consequences including moving of money and value, which results in the increased velocity of policy leadership required to navigate society through a fast-paced digital age. At their heart, DAOs are experimenting with dynamic policy decision making models in a public and digital environment when information is generated and communicated in real-time. We can learn a lot from the successes and failures of DAOs.
At this point in time LawFi DAO is an unregistered unincorporated association in Victoria (Australia). We chose a legally recognised form of entity structure that does not require registration, and which is generally used where a group of persons come together for a common purpose (like a sports club). In the future, LawFi DAO plans to design and implement a decentralised model of governance and provide services using smart contracts deployed on the Ethereum blockchain. Why has LawFi DAO not jumped straight into operating as a full-fledged DAO?
One of LawFi DAO’s purposes is to educate the public including regulators about DAOs.
Instead of jumping straight into operating as a DAO with a governance token and governance model, LawFi DAO was launched at a very early stage and before a governance token was created so that the LawFi DAO community could publicly and transparently go through the process of designing the governance token, governance model and operations to advance the purposes, and understand the risks associated with each of those decisions. To avoid uncertainty of legal characterisation of the organisation in its early stage, the model rules of an unincorporated not-for-profit association were used because the traditional form of safeguards in the model rules did not severely impose or hinder the early stage discussions of LawFi DAO members. However, as the membership moves through to decide on a strategic direction and operational activities the model rules will likely have to be amended and will reflect less and less of the traditional form of safeguards.
The extent of discussions in this early process and considerations around risk are not typically conveyed on the launch of a DAO and its governance token. Whilst a much slower process, it has meant that the LawFi DAO journey could demonstrate the breadth of complexity involved in deciding whether to adopt a DAO or traditional entity structure for the venture or activity or purpose being pursued by a few people or a larger group of people.
In the arts, there’s a tendency to shy away from legally onerous forms of arrangement. Here’s a great quote on the nature of this distrust from our research for Serpentine Legal Lab Report 1: Art & Tech/Science Collaborations: “The perspective is that lawyers aren’t there for you, that the law is there to take advantage of you. Everybody’s scared of that stuff because it’s not written in the way that we talk. It’s all about people fighting over loopholes.” How do you think the LawFi DAO model could change such attitudes towards getting legal advice and the law more generally?
Ideally, in the same way you can incorporate a company to coordinate activities within a recognised legal entity and within an entity’s brand, you should be able to start a DAO to coordinate activities but by using digital tools rather than paper-based processes and after-the-fact reporting. An ideal result of enabling safe innovation with DAOs is that you do not need to operate as a DAO in order to benefit from and use open-source protocols developed, tested and actively governed by DAOs.
If more protocols are developed to automate the everyday processes in arts businesses, then the real-time compliance nature of those protocols should mean there is less time and money spent on interpreting paper-based documents and enforcing them. We are already seeing this in terms of the royalty function standardised in non-fungible token contract protocols. If all art galleries (physical and digital) received payment for a piece of art in tokens (stablecoin or another token like ETH) then legal advice around rights to payment and royalties is a transaction cost no longer born by artists and art galleries using such protocols.
What we know of the DAOs of today won’t necessarily be the same as what we know and expect of the DAOs of tomorrow. The largest DAOs of today govern open-source protocols (one or more smart contracts) that are deterministic (they function as they are coded to function and do not introduce uncertainties or discretions from humans or artificial intelligence) and can be upgraded or modified accordance to the vote of governance token holders. The DAOs of tomorrow may launch and govern open-source protocols or they may use the protocols already launched to make their operations (internal and external) and governance more transparent and deterministic (i.e. less prone to fraud and human error).
If due to legal risks and uncertainty we cannot attract artists to contribute to DAOs working on protocols that will benefit the arts industry, then the arts industry could be left behind. In being left behind the arts industry will continue to bear the brunt of expensive legal advice and compliance costs of maintaining, interpretating and enforcing paper-based legal documents. In my view, increasing legal certainty around DAO innovation is what will attract people from the arts and many domains to contribute to the protocols that will make operating a business easier and more enjoyable and from a legal perspective, in real-time compliance without the compliance costs!