The emergence of decentralized autonomous organizations (DAOs) is revolutionizing the way Web3 projects are organized, managed, and scaled. As part of CoinDesk’s “BUIDL Week,” this article will explore the legal implications of DAOs and the value of decentralization.
At the highest level, three types of DAOs are emerging in today’s landscape: capital allocation DAOs, social DAOs, and governance DAOs. Capital allocation DAOs bring groups of people together to provide liquidity, vote on the allocation of that liquidity, and (ideally) distribute rewards back to the community. Social DAOs are typically organized around a token and promise companionship, networking, learning, and collaboration for the community. Governance DAOs are typically organized around major financial applications in which token ownership automatically grants “membership” (i.e., voting rights) in the DAO and the right to influence the direction of the protocol.
The value of DAOs is rooted in the idea of the “global village,” i.e., the capacity to coordinate trustlessly at a global scale. However, many DAOs prioritize complete decentralization, which may not always be the best approach. McMillan LLP Partner Benjamin Bathgate explains that just because the technology underlying a DAO is decentralized doesn’t mean the organizational structure of a DAO should be as well.
The legal implications of DAOs are still being explored, as evidenced by the case of Avraham Eisenberg, the alleged Mango Markets manipulator who is currently working to negotiate bail following his first hearing in U.S. District Court in New York. As the legal landscape continues to evolve, it is important for DAOs to understand the implications of their decisions and to ensure that their organizational structures are in line with the law.
In conclusion, DAOs are a powerful tool for organizing, managing, and scaling Web3 projects. However, it is important to understand the legal implications of DAOs and to ensure that their organizational structures are in line with the law. By doing so, DAOs can maximize the value of decentralization and ensure that their projects are successful.