DAVOS, Switzerland — The European Union should consider legislation to recognize decentralized autonomous organizations (DAOs) that govern Web3 applications, Finland’s communications minister said during a panel at this year's World Economic Forum.
The move could prevent having to alter thousands of laws or countries undercutting each other in the race to attract innovative business, Timo Harakka said.
“There are a lot of new players and actors in the Web3 world… not reflected very well in existing legislation,” he said. “Take a DAO for instance: Where does legislation stand?”
Harakka told CoinDesk new centralized laws could prevent a shattering of Europe’s legal codes – but that the European Commission, responsible for proposing new EU laws, had its eye on other matters.
Harakka said that "thinking on a multinational level” is needed to avoid “harmful regulatory competition” among the bloc’s 27 members, and prevent having to individually alter thousands of different laws regulating different kinds of contracts. The approach is reminiscent of the EU’s Markets in Crypto Assets (MiCA) legislation, which will create a uniform standard for each country if it is adopted.
Read more: European Union Postpones MiCA Vote to April
“We are relying on the European Commission to be the initiator” and are “eagerly looking forward to its work,” he told CoinDesk – but said he was in the dark about whether it will be covered by a forthcoming policy paper on the metaverse, due in the spring.
“In DAOs it’s a different logic” to regulating corporations with named officers in charge, Harakka told CoinDesk. “Who’s responsible for transgressions?”
Europe had been “obsessed” with other issues like how to control privacy online, he said, but added that “remarkable and groundbreaking legislation will usher in the way to Web3” – a nod to recent and ongoing EU initiatives such as laws on online privacy, information flows and online market dominance.
But so far, he added, “I’m not sure we’ve seen a lot of thinking on Web3.”
Regulators across the world are struggling with how to classify and regulate decentralized initiatives such as financial applications in which there's no central lender. Some have argued decentralization is a myth, as in practice there's always someone in control; in the U.K., the Law Commission of England and Wales has published a consultation on how to deal with issues of structure, governance and taxation.
While some policymakers have argued it may be too early to get set rules for decentralized finance – and largely left the topic out of the EU’s landmark MiCA law – Harakka argued it’s time to start at least thinking about a philosophical approach to the issue.
It took two decades for the bloc to figure out how to regulate online data flows, he noted, and regulating smart contracts “could take a while as well.”