#DAOs without a corporate entity expose all their members to unlimited liability, turning back the clock on centuries of risk management.

⚡ In most of the world DAOs are still not legal structures. Exceptions are Vermont, Wyoming, and Tennessee (1).

⚡ Truth is that LLCs in the US have only been around since the 1970s, who’s to say DAO is not the #LLC of the future? They’re potential legal structures.

✅ Regulating the decentralized

It’s hard to regulate the decentralized, a problem the government has been facing more and more with cryptocurrency and #blockchain technology. The precise legal status of this type of business organization is unclear.

For instance, legal entities often require bylaws filed with the government in a particular format, but DAO bylaws are usually written on the blockchain, and often unalterable.

✅ The problem

DAOs without a corporate entity expose all their members to unlimited liability, turning back the clock on centuries of risk management.

– If an investor owned a ship that smashed into a dock, for instance, the dock owner could sue the shipping company and its owners for damages.

– If a DAO is hacked or crashes, users could conceivably sue every identifiable member for damages and hold them liable for the lost funds, just like with that ship in the days of old.

✅ The good news

“In the past few years, there has been recognition of these types of blockchain-based organizations in the U.S. Three states — Vermont (July 2018), #Wyoming (July 2021) and Tennessee (April 2022) — have thrown their hats into the ring to be the “Delaware of DAOs” by adopting legal forms that limit liability for the members and are specific to a distributed blockchain-based organization” (1)

Truth is that LLCs has only been around since the 1970s, who’s to say DAO is not the #LLC of the future? They’re potential legal structure.

✅ The fiscal issue

And then there´s the fiscal issue. Any cryptocurrency or token for which the creators received founder’s tokens or any other benefits are going to be classified as securities when the SEC looks at them. And that includes governance tokens.


(1) The Rise and Recognition of the DAO
https://www.jdsupra.com/legalnews/the-rise-and-recognition-of-the-dao-7800237/#_ftn3

(to be continued)