Web3 Lawyer Interpretation: The Essence, Creation Process, and Legal Status of DAO Organizations

DAO( Decentralized Autonomous Organizations ), as an innovative paradigm in the Web3 world, are reshaping people's understanding of organizational forms. From Compound to MakerDAO, DAO organizations have incubated multiple star projects that change industry rules and have received widespread attention. However, the definition of DAO is difficult to define due to varying contexts. This article will analyze key issues such as the essence of DAO organizations, the creation process, and legal status from the perspective of a professional lawyer.

1. The Essential Characteristics of DAO Organizations

DAO organizations have two core characteristics: a decentralized organizational structure and a member-autonomous governance model.

1. Decentralized organizational structure

The DAO does not have a centralized decision-making management body like traditional companies; rather, it is collectively managed and decided by all members. This is specifically manifested as:

• Automatically execute operational management rules through smart contracts, eliminating human intervention.
• The management rules are completely open source and transparent, anyone can view them.
• All members share the organization's development benefits, with aligned interests.

This architecture avoids the moral hazard issues of traditional companies, such as actions by directors and executives that harm the interests of the company for their own personal gain.

2. Member-led governance model

DAO achieves autonomy through member voting, with main features including:

• Members holding governance tokens can propose and participate in voting.
• Voting is automated through smart contracts.
• Voting rules vary, such as one coin one vote, quadratic voting, etc.
• Representative voting can be used to improve efficiency

This model promotes equal communication among members, avoiding the disconnection between decision-making and execution in traditional companies.

However, DAO also has some limitations:

• Smart contract vulnerabilities may pose security risks
• Low decision-making efficiency
• Lack of a comprehensive legal regulatory framework

2. How to Create a DAO Organization

Creating a DAO organization usually involves the following steps:

1. Establish the organization's purpose and operational management rules.
2. Write management rules into the smart contract
3. Conduct rigorous testing and auditing of the contract
4. Raise funds by selling governance tokens and other methods.
5. Deploy the smart contract to the blockchain

It is important to note that this only refers to the creation of a DAO on the blockchain and does not equate to the registration of a legal entity within a legal framework.

3. Legal Status of DAO Organizations

Currently, only a few countries and regions have clear legal regulations regarding DAO organizations.

1. UAE

The "DAO Association Regulations" published by RKA DAO provides a clear legal framework for DAOs:

• Grant DAO independent legal person status
• It is required that the DAO must be deployed on a permissionless distributed ledger.
• Establish a registrar and auditor to oversee the DAO

2. United States

Wyoming has passed the "DAO Supplementary Act", allowing DAOs to register as limited liability companies.

The Tennessee Code has been amended to allow LLCs to register as "decentralized organizations."

4. Can DAO serve as the issuing entity for RWA projects?

• If the DAO has been registered as a legal entity in the local area and meets compliance requirements, it can issue tokens.
• Pure on-chain DAOs cannot directly act as the issuing entity for tokens and require legal packaging.
• It is possible to establish legal entities such as companies or foundations to transfer some functions of the DAO off-chain.

In summary, although DAO organizations have developed maturely on the blockchain, further linking to the real world still requires the improvement of relevant laws and regulations. DAO project parties also need to pay more attention to compliance requirements to reduce legal risks.