The legal nature of decentralized autonomous organizations (DAO) and its place in corporate law; A comparative study of Distributed Governance and the mechanisms of maintaining minority rights in Consensus-based decisions

Transition from centralism to autonomous structures

With the advent of blockchain technology and smart contracts, new entities have been formed under the title of "Decentralized Autonomous Organizations - DAO". These organizations are managed without the need for a central board and based on programming codes. From a legal point of view, the entry of DAOs into the business field has created fundamental challenges in the field of "legal personality", "partners' responsibility" and "corporate governance". This article deals with the comparative study of distributed governance and the challenges of maintaining the rights of minority shareholders in these emerging institutions.

1. The legal nature of DAOs compared to traditional business enterprises

In corporate law, one of the most important concepts is granting "Legal Personality" and limiting the liability of shareholders (Limited Liability). In the absence of specific protective laws (such as Wyoming's LLC law for DAOs), many jurisdictions treat DAOs as equivalent to "general partnerships"; This means that all members (owners of the sovereign token) may have unlimited liability for the debts of the organization.
In a DAO, the "Smart Contract" replaces the "Articles of Association" and the implementation of internal rules is ensured through immutable codes on the network.

2. Distributed Corporate Governance (Distributed Governance)

In traditional corporate governance, the main problem is the "Agency Problem" (shareholders versus managers). In DAOs, due to the removal of the management layer, this problem is largely resolved; But a new challenge under the title "Tyranny of the Majority" is emerging.
In distributed governance, decisions are made based on consensus mechanisms and token voting. If the rule of "one token = one vote" prevails, whales (major token holders) can easily pass decisions in favor of themselves to the detriment of the long-term interests of the organization or minority rights.

3. Mechanisms for preserving minority rights in consensus-based decisions

To prevent the violation of the rights of minority shareholders in the DAO, the designers of governance mechanisms use innovative mathematical and economic models such as Quadratic Voting (QV).

In traditional linear voting systems, the vote power ( $P$ ) is exactly equal to the number of spent tokens ( $T$ ): $P = T$ .
But in second-class voting, the cost of registering votes increases exponentially to prevent the dominance of big capital. The cost of votes ($C$) is proportional to the second power of the number of votes obtained ($V$):

$$ C = V^2 $$

Therefore, the voting power or influence of user $i$ ( $P\_i$ ) based on the allocated tokens ( $T\_i$ ) is calculated as follows:

$$ P\_i = \\sqrt{T\_i} $$

If we consider the total voting power in a proposal as $P\_{total}$, the total power of users will be equal to:

$$ P\{total} = \\sum\{i=1}^{n} \\sqrt{T\_i} $$

This mathematical formulation guarantees that a user with $100$ of tokens will not have $100$ of votes, but only $10$ of votes ($\\sqrt{100} = 10$) of influence. In contrast, $100 microusers, each with 1 token, will have a total of $100 votes ($100 \\times \\sqrt{1} = $100). This mathematical structure directly acts as a legal-algorithmic shield to protect minority rights against financial whales.

Conclusion

Decentralized Autonomous Organizations (DAOs) represent the next evolution in corporate law and corporate governance. In order to fully accept these institutions, legal systems must give automatic codes an independent legal personality. At the same time, blockchain architecture should go beyond simple linear voting systems and use distributed mathematical models (such as $P = \\sqrt{T}$) to ensure the protection of minority rights, which is one of the fundamental principles of modern business law, in the context of computer codes.