The lawsuit shows decentralized organizations increasingly need legal structures to operate in the offchain world.
PleasrDAO may be one of the most crypto-native organizations, yet it’s recurring to a very “trad” tactic: A good, old-fashioned lawsuit.
The DAO sued convicted felon known as “pharma-bro,” Martin Shkreli, on June 11 for breaking intellectual property rights.
The collective, which paid $4.7 million for the rights to the one-of-a-kind album Once Upon a Time in Shaolin, recorded by famed hip-hop group Wu-Tang Clan, alleges Shkreli made multiple unauthorized copies of the album and released them to the public.
The lawsuit points to the growing trend of decentralized organizations facing the need to create legal structures for their operations.
According to Adam Miller, CEO and co-founder of MIDAO, an organization that helps DAOs & Web3 projects incorporate themselves legally in the Marshall Islands, PleasrDAO’s lawsuit could be one step towards a more mature DAO ecosystem.
“This pushes the envelope so other DAOs realize they should get a legal entity,” Miller told The Defiant. Miller added that it shows people in Web3 that legal entities aren’t entirely anti-crypto nor a bad idea.
Pplpleasr NFT
PleasrDAO is a collective of DeFi traders, early NFT collectors, and digital artists that have been collecting unique NFTs since 2021. PleasrDAO first organized to buy an NFT by digital artist Emily Yang, who is also known as Pplpleasr, hence the DAO’s name.
The organization, legally represented as an “exempted foundation company,” which means it is not subject to income, withholding, or capital gains taxes, sued Martin Shkreli on June 11.
One-of-a-Kind Album
Once Upon a Time in Shaolin is a one-of-a-kind album created by famed hip-hop group Wu Tang Clan in a bid to “save the music industry from crisis.”
Only one individual copy was created, and subsequently sold, and hadn’t been listened to until Shkreli allegedly played portions of the album during a livestream he hosted on X over the weekend of June 8-9, in an event he called the “Wu-Tang official listening party.”
Shkreli’s move came just a couple of days before PleasrDAO had planned its own first public listening, which took place in a church in NYC on June 8.
Controversy Ensues
PleasrDAO went to court to protect its property and some in the crypto community were quick to criticize the move.
Pseudonymous internet troll 0xMakesy wrote on X after the lawsuit was filed “Drop the ‘DAO’, it’s cleaner,” which was retweeted by crypto-native lawyer, Gabriel Shapiro. Several users agreed, including Hadron Labs general council, “lawpanda,” who wrote “hey could have just named it Pleasr Foundation, smdh.”
But Miller said legal entities don’t inherently reduce decentralization.
“Decentralization might not even refer to the social structure but rather the underlying technology,” he said. “If organizations are using a distributed ledger for its tokens, then what’s not to say it’s decentralized?”
Uniswap founder Hayden Adams echoed the sentiment.
“People complaining about DAOs suing don’t realize Pleasr is basically a member-owned museum,” he wrote on X, adding that the DAO part is “because many of its components and assets live onchain.”
“It’s not a public DAO anyone can buy into, [and] of course they’re protecting IP rights to the Wu Tang album they spent $5 million on,” Adams said.
DAO Status Across Jurisdictions
Miller works directly with the Marshall Islands, which is one of the only jurisdictions that explicitly recognizes the legal structures of DAOs.
And for him, these types of organizations are helpful for governments themselves, aiding with some much-needed transparency. “Governments get way more visibility into how a company operates,” he explained. It’s a tradeoff, in Miller’s mind, that despite using crypto at its core, authorities will simply have to accept.
Another jurisdiction that recognizes DAOs is the state of Wyoming in the U.S. The state recently created a statute dubbed DUNA–the Decentralized Unincorporated Nonprofit Association–which expands the already friendly legal waters for DAOs in the state.
Experts in crypto-related law gave it two thumbs up after it passed.
A number of other states also reportedly acknowledge and have passed DAO specific regulations, including Utah, Vermont and Tennessee.
Legal Clarity Onchain
While the previous examples show progress with DAOs getting more regulatory clarity in the traditional world, there are projects working towards finding legal certainty in a decentralized economy.
Kleros, dubbed the “Justice Protocol,” is an open source online dispute resolution protocol which uses blockchain and crowdsourcing to fairly adjudicate disputes.
PleasrDAO is not the only DAO to take legal action. Token holders of Aragon, a project meant to – perhaps ironically– help create and run DAOs, voted to sue the Aragon Association for allegedly offering an unfair redemption plan amid dissolution.
On Nov. 21, the DAO voted to allocate 300,000 USDC to Patagon Management, a Delaware-based company owned by Diogenes Casares, to take legal action against Aragon.
The funds allocated to support the lawsuit constitute a “highly conditional grant” that was sent to Patagon Management LLC, a Delaware-based trading firm that previously engaged in “similar legal action” against SpartacusDAO’s alleged founder, Wei Wu, on behalf of token holders.
Similar legal action against Wu refers to a $35 million freeze that a judge slapped against SpartacusDAO’s leader after SPA token holders were unsatisfied with the progress with the crypto yield project.
Offchain Impact
Francisco Díaz, a researcher at TalentDAO, who also participates in the Decentralized Science space, says legal recourse is especially important in DeSci.
“In DeSci it’s important to have that legal entity so we can register intellectual property on medical patents, for example,” he pointed out.
“If a DAO has a big influence in the physical world, then it might be useful for them to search for jurisdictional protection,” said Díaz, “If a DAO wants to have an impact outside of the digital world, it needs to have an ‘offchain’ entity that can deal with legal situations like these.”
Music To The People
As for the status of the album that spawned the controversy, PleasrDAO have decided to give people a chance to listen to it, even if it was meant to be released in 2103.
Fractions of the album are now available for purchase on its official website as $1 NFTs on Base. Every purchase accelerates 2103 by 88 seconds.
As of writing, more than 95,500 albums have been collected by 4,308 unique collectors.
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