Deciding to enter the DAO? Well, this guide is for you to enter the DAO. Before risking your investments, we've outlined four key points. Grab a seat and get ready for a deep dive into the world of DAO.
Things to discuss:
Unsuccessful DAO infrastructure
Legal battles
Effective coordination or full decentralization?
DAOs have no HR department and no legal status
1. Unsuccessful DAO infrastructure
DAOs are autonomous and decentralized organizations. It is both their strength and their vulnerability. They lack the effective infrastructure which traditional companies use so easily. DAOs are faced with developing their tools, and most of these solutions are quite "out of the box".
Examples:
token-based membership
horizontal structure: no sole proprietor or board of directors. Instead, each member of the organization is a full co-owner
blockchain as an organizational electronic register
The lack of a structured system for reporting, budgeting, management, payroll, communications, and stress management are common risks for DAOs. As a result, it is likely to lose members and need help attracting funds.
Yes, DAO's infrastructure is a challenge. But it could be a potential opportunity for groundbreaking solutions.
2. Legal battles
DAOs bear similarities to modern types of legal entities, such as corporations, non-profit organizations, partnerships, and cooperatives. These legal entities are subject to the rules of the jurisdictions into which they are domiciled.
Yet, DAOs are now facing the following regulatory issues in almost every corner of the world:
taxation of tokens, treasuries, and investments
the way to get insurance for investments
implementation of anti-money laundering and anti-terrorist financing policies
the responsibility for the conduct of a DAO
Wyoming is setting a positive example by allowing DAOs to act under the same regulations as limited liability companies and stating that the operating agreement of a DAO legal entity can take the form of a smart contract. Still, DAOs are more comfortable residing within the crypto-ecosystem, as any attempts to go beyond it may lead to auditing by law enforcement bodies. Nevertheless, there is no need to be worried. DAOs are rapidly growing in popularity. We believe it is only a matter of time before other countries join this practice.
3. Effective coordination or full decentralization?
Generally, DAO participants are defined by the number of staked tokens. For example, 10 tokens are staked - 10 votes are gained. It's convenient, but it's only sometimes the case. What if you require an expert decision rather than a vote?
Traditional organizations operate with a certain hierarchy since engaging every staff member in voting could be more efficient. Imagine: everyone in the organization has to vote on the SEO strategy or the code base.
In a decentralized world, the necessity of people with expertise to make complex technical decisions is undeniable. The model used by the ENS DAO is one way to meet this challenge. They developed a governance framework in which members vote for qualified professionals to make crucial decisions. Yet, doesn't this lose the crux of DAO - total decentralization?
It is a complex issue, but it can be solved. ENS DAO proves that this can be a successful approach.
4. DAOs have no HR department and no legal status
DAOs are new phenomena, with a vague legal status in most countries they operate in. They reject clearly defined roles, preferring the idea of "emergence" to a job description. Thus, for the time being, they are too risky for many people.
DAO depends on a mutual system of values. It underscores the need to build trust and transparency. By contrast, a corporation requires no trust. It has contracts.
However, transparency concerning reporting, valuation, and tax implications has yet to be reached. DAOs are frequently hidden behind a fog of ambiguity, while the lack of transparent disclosure creates room for fraud and hacking.
The absence of a legal mechanism for redress in the case of damage to the DAO leaves members vulnerable. While these challenges are serious and require solving, the key challenge is more practice in handling them.
The practice will pick up with time, and the challenges will find the proper solution.
All these risks demonstrate that DAO is much more complicated than it might seem at first glance. Although the control tokens of some DAOs have made investors a decent profit, it remains crucial to remember that it's not a regular investment tool.
Considering the above points, setting up a DAO is a tedious process. Nonetheless, DAOs have a perspective and allow you to experience new concepts. DAOs are already on the brink of official acceptance. In the not-too-distant future, they may enter a new level and become a true crypto industry breakthrough.
Feel free to contact our team for a consultation if you are willing to realize cutting-edge ideas. We will show you that setting up a DAO is no longer a tedious process with many challenges but a groundbreaking solution.
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