Traditionally, central governments have been the ones providing governance and bureaucracy but now blockchain and smart contracts are using governance technologies that have the potential to provide higher levels of transparency while reducing bureaucracy with self-enforcing code. They can introduce decentralization in this process and minimize existing moral hazards. They can tackle the challenge of governance and resolve the dilemmas in governance. Welcome to the new world of DAO’s.
In a Decentralized Autonomous Organization (DAO), the organization makes decisions on behalf of the people or entities in the organization. However, the decisions are at the cost of risks. 2019 was year of DeFi and 2020, though very early in the year, looks to be turning toward the year of the DAO. In the past year there has been iteration in the creation and management of DAO. There are several institutions that offer the services of creation, deployment, and management of a DAO. In this article, we’ll discuss the legal way of setting up a DAO.
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It is surprising that a community of strangers can pool value together and execute on their shared goals with less need for trust or organizational overhead, this is why there’s a need for the DAO. The entire process of making a DAO takes a few months and the outcomes include a custom ERC-20 digital token to manage an on-chain “digital guild.”
Recently, dOrg, a group that characterizes itself as a “blockchain development shop,” announced this week it had registered the “first legally established Decentralized Autonomous Organization (DAO) under United States law.”
How can I set up a DAO?
The first step is to create a blueprint and register to form a DAO on the Ethereum Network. DAOs can be started without any permission. It can be started by a group that has the necessary technical know-how and requisites. Any DAO that is created in this manner can be instituted as official legal entities and plugged right into the heart of mainstream business circles.
DAO members start the legal process with special counsels from law firms that work with DAOs. Vermont Law School is one of this kind. DAOs need a legal wrapper and dOrg is now the first legal entity that directly references blockchain code as its source of governance.
All operational processes and ownership interests of the DAO are managed entirely on-chain.
These organisations are approved by an absolute majority and its accessible to anyone and everyone in the world. Ultimately, the process of configuring and deploying a legally registered DAO is as simple as forwarding an email.
DAOs have been known to create alternative models for funding popular, secondary markets to accelerate the adoption of the tokens by creating liquidity to mitigate risk. Previously, Dapps were more relevant to the ecosystem and the scales have now tilted in favor of DAOs.
While DAOs are not currently legal, with the exception of the one we’ve mentioned, who seems to be pioneering the way, there is uncertainty for legal actions brought against a DAO as well as the legal rights of a DAO.
It is not clear if the actions of DAO can be attributed to the creators of that DAO. According to the current scenarios, DAO token holders may choose not to disclose an owner or primary actor. DAOs are currently considered a general partnership or a joint venture, resulting in any participant being a representative of the DAO’s interests. DAOs can obtain jurisdiction over the organization by serving any human participant in the DAO. The lack of regulatory recognition limits the utility of DAOs for risk-mitigation.
If considered a general partnership, a plaintiff could thus serve any participant who benefits from the DAO who is within the geographic scope of the court’s power. DAOs can obtain funding from investors overseas without specifying the nature of the project and additional permissions. DAOs are the way to go for teams looking to start working on a project soon. If you go this route, be sure to speak with legal and accounting representatives who are familiar with this kind of organization.
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