Crypto Associations
Standing behind every crypto asset is a crypto association. Blockchains are typically not organized as traditional legal entities such as a corporation, partnership, or LLC. Instead, they operate through a decentralized network of participants who are bound together by economic incentive to collectively run the blockchain. A Developer typically starts the blockchain, writing the computer […]
James Park is Professor of Law at UCLA School of Law. This post is based on his recent article forthcoming in the UCLA Law Review.
Standing behind every crypto asset is a crypto association. Blockchains are typically not organized as traditional legal entities such as a corporation, partnership, or LLC. Instead, they operate through a decentralized network of participants who are bound together by economic incentive to collectively run the blockchain. A Developer typically starts the blockchain, writing the computer code that creates a digital ledger and sets the rules that govern it. The Developer recruits Validators who will verify the transactions recorded on the blockchain in return for compensation in the form of crypto assets. Purchasers of the crypto asset are also necessary to initially fund the creation of the blockchain and provide a liquid secondary market that helps ensure that the Developer and Validators are compensated for their work.
Many crypto associations maintain that they operate differently from entities. They do not have a central decisionmaker such as a board of directors or partnership management committee. This position has been crystallized in litigation where crypto defendants have taken on the startling position that crypto associations owe no contractual or other legal obligation to Purchasers of crypto assets. If investor funds are diverted by Developers for their own enrichment, or crypto assets become worthless because Developers do not follow up on their promise to build a network, the Purchasers have no legal remedy against the Developer or any other party.
