A New Form Of Organization
With Novel Legal Considerations
As technology progressively moves with a bias for decentralized systems with distributed consensus methodologies, decentralized autonomous organizations (DAOs) are emerging as a way for groups to accomplish various goals through a unified organization. Historically groups of individuals with a unified goal would form a legal entity of one kind or another. The benefits of creating such an entity are numerous, including protection from personal liability. Before the advent of blockchain and smart contracts, these entities were centralized by directors, boards, or otherwise. In contrast, the DAO aims to get the benefits of a unified entity while simultaneously eliminating what are viewed as adverse effects of centralization. One of the challenges of DAOs, though, especially as it relates to corporate governance and entity formation, is how to fit a DAOs novel structure and nuances into decades if not centuries-old legal frameworks. In response, states like Wyoming have passed laws that create specific legal structures (“Wyoming DAO LLC”) fit for purpose in the DAO context. In addition, other states such as Delaware have implemented amendments to existing laws that allow for the use of blockchain technology in corporate governance.
While DAOs have shown immense potential for accomplishing a variety of goals, whether in the context of the arts or for creating one of the largest DEXs, embarking on a DAO-based project is complex and holds significant regulatory and legal risk. Each component of a DAO must be analyzed to account for corresponding risks ranging from entity formation and liability (including from faulty smart contracts) to securities and exchange laws. At RICHT, we focus on helping clients capitalize on opportunities made possible by forming a DAO. LexoCrypto™, our dedicated and multidisciplinary legal practice focused on the intersection of cryptocurrency and blockchain with the law, allows us to offer clients a full suite of legal services with the singular goal of managing legal risk while reaching project goals.
“We’re kind of witnessing this hive mind emerge—not the wisdom of crowds but the wisdom of a smaller, curated crowd with skin in the game.” – Aaron Wright
- Entity Choice Advisory & Formation
- Regulatory Risk Review & Advisory
- Federal Securities & Exchange Laws (SEC), Howey Test Analysis, & State Securities Laws (Blue Sky Laws)
- FinTech Licensing and Regulation Guidance
- Initial Coin Offerings (ICOs) & Simple Agreements for Future Tokens (SAFTs)
- Smart Contracts
- DAO Tax Implications
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A Legal Framework for Decentralized Autonomous Organizations
A framework to assist DAOs in evaluating their own facts and circumstances to determine whether a legal entity structure is necessary and, if so, assist in identifying which of the available entity structures provides the most benefit.