Are DAOs Legal Entities and What Types of DAOs Exist in 2022?

Are DAOs Legal Entities and What Types of DAOs Exist in 2022

From decentralized autonomous organizations (DAOs) that enable social networking to those that help with fundraising—here’s a look at the types of DAOs and their legalities.

If you are a frequent user of decentralized platforms, you must have been acquainted with the concept of decentralized autonomous organizations (DAOs). From startups to play-to-earn games—founders are optimizing the potential of DAOs to create ecosystems that thrive on collaboration and shared ownership. According to the CEO and co-Founder of Late Checkout, a product studio that designs, creates and acquires Web 3.0, Greg Isenberg, DAOs fulfill the human need to belong to a community. He summarized in an interview, “‘Come for the DAO, stay for the community,’ is the new mantra.”

Given that, we look at some popular types of DAOs that exist today:

1. Grants DAOs

In grants DAOs, a community of investors, like decentralized venture capitalists, places their funds in a grant pool. These funds are then used to invest in decentralized finance (DeFi) projects. By becoming a member of a grant DAO, like Audius Grants, you gain governance tokens, using which you can vote on how you want the capital (funds) to be allocated and which projects the money should go to.  

2. Protocol DAOs

Also known as automated market maker (AMM) DAOs, protocol DAOs focus on determining the right protocols—such as smart contracts—to use on a platform that provides DeFi services to users. You get tokens with which you can vote for your preferred protocol. Some popular protocol DAOs include Uniswap and Curve, where users trade cryptocurrencies on decentralized exchanges (DEXs)

3. Investment DAOs

Investment DAOs are a transparent and inclusive way to invest in projects of your choice. Here, as the name suggests, members pool money that they invest collectively in different projects. Traditionally, investors are people from ‌elite groups, to which regular people have very limited access. Investment DAOs eliminate that. They remove the barrier between people and profitable projects, so much so that you can invest in anything—from your favorite NBA team to lands in your dream city. Examples include the LAO and BitDAO.

4. Collector DAOs

Imagine a group of art aficionados who collect exclusive pieces of art and share their ownership. That’s the concept behind collector DAOs. It’s a great way to purchase non-fungible tokens (NFTs), given their exorbitant prices. Members pool money and buy expensive NFTs, of which they share ownership. 

P.S. This can be a great way to buy that Bored Ape NFT that’s way out of our budgets. 

5. Service DAOs

With DAOs, not only can you scale your startup but also find employees that will help you do so effectively. That’s made possible with service DAOs. From discovering to acquiring talent—service DAOs boast exclusivity and a literal “pool” of excellent talent. You can also find people there who will help you build your own DAO!

6. Social DAOs

Imagine using Instagram, but instead of the founders, you and your friends decide what’s allowed and what isn’t based on votes. Social DAOs bring social networking formats onto a blockchain. For instance, the Friends With Benefits (FWB) DAO brings together artists and cultural thinkers, offers its own tokens and hosts member-only events. (Imagine an “I Love Rihanna (ILR) DAO” where all of us get together and demand a new album. It’s high time!)

7. Media and entertainment DAOs

Sharing community-driven content, news and more is the focal point of media and entertainment DAOs, such as Mirror. Thanks to these, we will finally be able to access unbiased news (perhaps). Another example is the Bored Ape Yacht Club that offers tokens to its members, allowing them to make creative decisions. You can also start a writing or filmmaking DAO, where you and other film enthusiasts vote on the direction the protagonist and other characters should take (petition to go back in time and save Dobby!)

Are DAOs legal entities?

In some places, such as Wyoming and The Republic of the Marshall Islands, yes. Wyoming became the first state in the U.S. to allow the creation of DAOs as limited liability companies (LLCs). Becoming an LLC protects DAO owners from bearing individual responsibility for any debts or liabilities. It separates the owners’ personal assets from their business ones, thus reducing their risk. Since the DAO boom is fairly recent, other places are yet to ascertain their stance on DAOs; however, it will help if there was some legal aspect involved so as to protect individuals from potential bankruptcy in the future. 

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