1. How can the community achieve legal clarity for DAOs?
Almost unanimously, interviewees identified legal uncertainty as the biggest issue for DAOs. While these are specific legal questions that lawyers might address, there are broader outstanding legal queries related to operations, treasury management, taxation, and other areas that require new policy or regulation to achieve clarity.
As such, DAOs need answers to how they can engage with regulators and policymakers to establish and protect their rights. This issue is particularly relevant given the advocacy campaigns the cryptocurrency industry has run recently in response to the infrastructure bill.
2. What are best practices for DAOs to maintain legally compliant relationships with the individuals and organizations that work for them?
DAO operators face this issue daily as they organize and enter into novel relationships with talent that do not necessarily have any legal precedents.
Relationships with employees and contractors are relatively straightforward when you have an entity through which to contract but they’re much more complicated when you don’t. This is made all the more complicated as DAO talent are located in jurisdictions around the world with a variety of different employment laws.
3. What are best practices for limiting the liability of DAO stakeholders? Including founders, workers, and token holders?
Potential liability for DAO stakeholders was, unsurprisingly, top of mind for many of our interviewees. Crypto teams generally have a high tolerance for risk, but given the breadth of legal uncertainty around DAOs, they seem particularly eager to figure out how they can limit their liability. Many others are operating in the space without any thought of the potential liability associated with their actions.
One of the most obvious and direct paths to limiting liability is to incorporate legal entities. Which type of entity and the scope of that entity’s work are open questions, however. Most teams that have started legal entities hope to dissolve those entities when they feel more comfortable with the legal environment.
Another way of limiting liability for DAOs could be to form mutuals or indemnity funds that protect organizations and talent from the cost of legal action.
4. How do you develop an equitable, scalable, and decentralized governance system for DAOs?
Interviewees were wrestling with how to use mechanisms like proposals, elections, delegation, and voting thresholds to create ideal governance systems. Many DAOs simply mimic the systems of their high-signal predecessors without assessing whether that strategy is optimal for their specific project.
So how do you develop a system that can be both scalable and decentralized? Interviewees observed that a DAO could scale more easily if it centralized to some extent and wrapped itself in a legal entity, or simply used a legal entity for some of its operations. While flawed, some legal entities were designed, at least in part, to more efficiently coordinate decision making between persons with a shared financial interest. Interviewees suggested they wanted to extract the good parts from these legacy systems while omitting the bad. By way of a simple example, most larger DAOs have created workstreams or committees and delegated decision-making at some level to those groups, like treasury management, marketing, and grants programs.