Russia to Introduce ‘Digital LLCs’ as DAO Concept

The Russian Ministry of Finance is set to develop a pilot project for creating digital limited liability companies (LLCs) with corporate agreements enforced through decentralized ledgers, akin to DAOs. This was reported by TASS, citing a statement from Alexey Yakovlev, director of the department of financial policy.

Under the project, once an LLC is registered and a corporate agreement is signed, the latter will be converted into a smart contract. The subsequent accounting of rights and management of shares is expected to take place on platforms operated by information system providers that issue digital financial assets (DFAs).

Currently, 11 companies in Russia hold licenses to issue DFAs: Atomyze, Lighthouse, Sberbank, Alfa-Bank, Masterchain, Eurofinance Mosnarbank, Tokeon, SPB Exchange, Blockchain Hub, the National Settlement Depository, and T-Bank (formerly Tinkoff).

According to Yakovlev, the new concept will simplify the process for businesses to obtain bank loans secured by “digital” shares. 

“If all the rights and obligations of the participants in a digital society are recorded in a smart contract, transparency improves, and the risk that the provisions of the corporate agreement might not be fulfilled by participants is minimized,” he explained.

The Ministry of Finance’s proposal will soon be discussed with government agencies and market representatives.

Vladimir Sobinsky, a lawyer at DRC, told ForkLog that while the “digital LLC” concept employs typical DAO approaches, it still has several key differences in legal and operational structures. 

“Digital LLCs are integrated into the Russian legal system and regulated by the state. In contrast, DAOs aim to minimize centralized control. They operate on a global blockchain where management is conducted through decentralized smart contracts and voting, without being tied to a specific jurisdiction. DAOs may lack a regulator, which creates challenges for their integration into traditional legal systems,” the expert explained. 

Essentially, digital LLCs retain the traditional form of legal entities with distributed participant shares but incorporate blockchain elements. DAOs, typically, do not have a centralized ownership structure. 

“Participation in a DAO is more flexible, often requiring staking project tokens, and corporate agreements are replaced by automated rules embedded in the code of smart contracts,” Sobinsky added. 

Thus, digital LLCs can be seen as a hybrid form: they use key DAO elements but remain under strict state control.

“The Ministry of Finance focuses on ensuring that digital LLCs operate within the existing economic and legal system. This allows for the introduction of innovative tools (decentralized ledgers, smart contracts) to enhance the transparency and security of corporate transactions, while preventing the disorganization of the system, as might occur in fully decentralized structures like DAOs,” concluded the lawyer. 

As reported, the Russian law permitting the use of cryptocurrencies under an experimental legal regime came into effect on September 1. Based on this, the Central Bank is preparing a pilot for foreign trade settlements and exchange trading with digital assets. 

The first cross-border transactions are planned by the end of 2024. 

Earlier, experts reported that representatives of the Russian crypto business were not included in the focus group for this experiment.