A DAO is a blockchain structure (think of it as a secure database) that anyone can leverage to self-govern through participation, authored by rules, baked into code, and permitting voting through digital tokens (think cryptocurrency) — all while leveraging smart contracts. What does this mean? A DAO is a newer legal structure that humans (for now) create with a stated purpose and a plan to execute decisions via code.
These DAOs operate with different assumptions than many of today’s traditional legal entities and other business associations. DAOs are not run by boards or managers but rather aim to be governed by democratic or highly participatory processes or algorithms. Instead of operating in one or a handful of jurisdictions, DAOs seek to stretch across the globe, stitching together thousands—if not tens or hundreds of thousands—of members regardless of their physical location, background, or creed.
As our world has become increasingly digital, technologists seek to evolve social coordination by using blockchain technology and associated smart contracts to structure and ultimately automate key aspects of group decision-making, capital formation, and capital deployment. These digitally native organizations referred to as DAOs, hold out the hope, at least in the eyes of their creators, of serving as the primary organizational structure for the Internet Age.
DAOs are the future of organizations. They will create an amazing world of possibilities but simultaneously disrupt many of the structures we currently have in place. On the legal side, there is an incredible opportunity for lawyers in both transactional practice areas and the eventual litigation side of the business. It will be fascinating to watch how we embrace and adapt to this decentralized model with our current lens when regulation comes.
DAOs are growing in importance, and there is an early-stage indication that blockchain-based governance will significantly impact the way firms are governed—both by digitizing traditional governance mechanisms and offering fundamentally new ways of organizing business enterprises.
Entrepreneurs and organizers who wish to adopt a system of blockchain-based governance—even highly decentralized forms of blockchain-based governance—will want a way to secure a separate legal existence for their enterprises. To be sure, the emergence and expansion of blockchain-based governance will present challenges as it intersects with traditional business law and the organizational forms that are at their core, but this should not be mistaken as an indication that blockchain-based governance is necessarily hostile to the policies underlying that body of law.
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