How Does a DAO Manage Liability for Smart Contract Errors?
DAOs typically manage smart contract liability by explicitly stating in their legal documentation (if any) that members are not personally liable. They also use decentralized insurance protocols to cover potential losses from technical exploits.
However, without a clear legal entity, the liability risk often remains ambiguous and a major regulatory challenge.
Glossar
Decentralized Insurance Protocols
Operation ⎊ Decentralized Insurance Protocols function by automating the entire lifecycle of an insurance contract, from premium payment to claim settlement, using immutable smart contracts.
Liability
Exposure ⎊ This quantifies the potential financial downside an entity faces from its obligations, whether stemming from unhedged positions in options or from collateral shortfalls in lending protocols.
Smart Contract Liability
Exposure ⎊ Smart contract liability, within decentralized finance, represents the potential for financial loss stemming from vulnerabilities or failures in the underlying code governing automated agreements.