Is it time for DAOs?

Good morning! Welcome to The Daily Moon. It’s a brand new week. Late in December, y00ts and DeGods announced they were swapping Solana for Polygon. It seems both were paid $3 million to abandon Solana. The death blow to Sol may not have been so after all. Moving on, today we talk about whether DAOs can become the new way of doing business.

The markets were shaky. Bitcoin was at $16,950 and Ethereum was at $1,260 levels. Nasdaq recovered from the cautious US jobs data. Back home, Sensex and Nifty faced losses.

Can DAOs Replace Companies?

Every 90 days, the US Fed meets to decide whether to hike interest rates. Once the Fed hikes rates, banks follow. Account holders in these financial institutions don't have a say. But on the other end of the spectrum, there are entities called Decentralised Anonymous Organisations (DAOs) that give back power to the community. Everything, from rate hikes and rewards to withdrawals, is decided with the community’s consensus.

DAOs are organisations that are built on the blockchain. There is no central authority or CEO, neither are DAOs regulated by the government. The only similarity with traditional companies is that DAOs function as business entities in segments, such as finance, investing, decentralised apps, and communication.

Aave, Curve, Decred, Maker, and Uniswap are some of the prominent DAOs. Unlike regular companies, DAO members do not necessarily know each other and can operate from anywhere in the world. The organisation runs on the blockchain and community members hold governance tokens.

Considering the transparent governance structure, DAOs have become popular. So much so that three US states have recognised DAOs as legal entities.

Who needs DAOs?

Decentralised businesses running on the blockchain need independent governing teams. And DAOs fulfil that role through active community participation. It isn’t one person calling the shots.

In the crypto community, DAOs are the default governance body. Take Decentraland for instance. The metaverse gaming platform is controlled by a DAO where anyone who holds MANA tokens can become a member.

As the use cases of blockchain grow, DAOs are the logical addition. Polygon, for example, set up its DAO to boost its DeFi and GameFi expansion. While the DAO is responsible for the day-to-day functioning of the ecosystem, the blockchain engineers help the network scale.

Can DAOs become the alt for corporations?

TradFi investors have made a switch to DAOs, so the change is here to stay. Take the Peter Thiel-backed BitDAO. The decentralised investment fund is the web3 version of a traditional venture capitalist. It makes investment decisions based on community votes and holds crypto capital worth $1.6 billion.

Another DAO venture fund called The LAO has already funded over 30 blockchain projects. Typically, funding is provided in crypto that can be converted into US dollars. The LAO is registered as a limited liability company in Wyoming, US, which means it has a legal existence even outside the blockchain.

A DAO’s autonomy is the pull factor that draws TradFi users to it.

1. You don’t have to fill out lengthy and complicated forms to set up a business.

2. You are not controlled by the ever-changing regulations in a country or a state.

3. You don’t have to pay high taxes and licence fees.

Some entities that were originally set up as private companies have become DAOs. For example, seven years after its launch, crypto trading firm ShapeShift dismantled its corporate structure and transformed into a DAO in 2021.

Minimal government interference has attracted many to the DAO world. In fact, even creators and designers are now part of DAOs to bypass the control of large technology companies such as Google and Meta.

Are regulators satisfied?

Wishful thinking, but no. The SEC isn’t in favour of DAOs using tokens without prior permission. A DAO called American CryptoFed was barred from registering its governance tokens by the SEC. Like previous cases, the regulator wants the tokens to be filed as securities instead.

Countries such as Australia, China, India, and Japan do not officially recognise DAOs. The tax implications are also vague, which means DAOs’ legality is in a state of flux. But now that the change is on our doorstep, governments cannot ignore the existence of DAOs for too long.

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