DAOs Beware: Neo-Imperialism Is on the Rise in Crypto-Land

🌈 Abstract

The article discusses the author's perspective on the recently introduced Wyoming DUNA (Decentralized Unincorporated Nonprofit Association) legal entity, designed to cater to the needs of decentralized autonomous organizations (DAOs). The author acknowledges the DUNA as a positive legal innovation, but expresses concerns about Andreessen Horowitz's (a16z) intentions to make it the "industry standard" for blockchain networks, potentially through investment conditions.

🙋 Q&A

[01] Legal Status and Suitability of DUNAs

1. What are the author's views on the a16z's claim that DAOs need "legal existence"? The author argues that the claim about the need for legal existence is a "blanket statement" that is likely wrong in many circumstances. The author suggests that the choice of legal structure should follow an analysis of the project's requirements, and that prescribing a specific legal entity type before such analysis is putting "the cart before the horse." The author believes that a DUNA may or may not solve project teams' issues, and there are many other alternatives that might be better, depending on the facts and circumstances.

2. What example does the author provide to illustrate that legal entity is not always necessary for successful decentralized projects? The author uses the example of Satoshi starting Bitcoin (BTC) by setting up a legal entity before releasing the code. The author argues that if this had happened, Bitcoin would not be where it is today.

[02] Tax Implications of DUNAs

1. What is the author's view on the a16z's argument that DUNAs are great because they empower the DAO to pay taxes in the U.S.? The author finds this argument "surprising" and "bizarre." The author states that typically, great efforts are made to minimize tax exposure to the U.S., and for DAO members who are not U.S. tax residents, the author has a hard time imagining how a DUNA can improve their tax situation. The author believes that DUNAs would not be a top choice for tax structuring unless the DAO is purely U.S.-based.

2. What does the author suggest is the primary motivation for a16z to promote DUNAs from a tax perspective? The author suggests that the DUNA structure might be good for a16z's own tax situation, as a U.S. entity with substantial interests in many DAOs and networks, as it could reduce their tax risk. However, the author believes that what is best for a16z should not dictate the terms for everyone else.

[03] Liability Considerations

1. What are the author's views on the a16z's argument that DUNAs can address the liability risks faced by DAO members? The author agrees that the unclear legal status of DAOs is an issue that needs to be solved, but disagrees that a legal entity wrapper is the only way to address this problem. The author provides the example of the Q Protocol, which uses a set of private contracts between DAO members to effectively let them "opt out" of their local jurisdiction.

2. How does the author characterize the use of a legal entity to reduce liability risks? The author describes using a legal entity as the "lazy" version of reducing liability risk, and states that not all liability risks evaporate just because a legal entity is in place. The author emphasizes that there is no substitute for an analysis of each DAO's specific requirements.

[04] Concerns about Standardizing DUNAs

1. What are the author's concerns about a16z's desire to create a "de-facto standard legal entity structure for DAOs"? The author believes that this is misguided, as the crypto landscape and legal frameworks are still evolving. The author argues that converging to one standard too early is a sure way to stifle innovation, and that jurisdictional diversity is a key element of decentralization.

2. How does the author view DUNAs in the broader context of legal structures for DAOs? The author sees DUNAs as one option among many for structuring DAOs or decentralized networks, and believes that there are many options outside the U.S. as well. The author emphasizes that the most important thing is for code and communities to exist autonomously without a legal wrapper, and that anyone selling a specific solution as the "standard" will be wrong.